Multiple expansion is back. The S&P 500 Price to 12-month Forward Earnings multiple is back to almost pre-crisis levels.

Investors are ignoring the warning signs of companies eliminating guidance, slashing dividends and buybacks and the macro data.

Most investors are looking at 2020 as a lost year and focus on 2021 and the recovery, driven as well by massive central bank liquidity injections and rate cuts. This may be a risky strategy because:

• The cycle was already weak prior to the Covid-19 crisis.
• Macro estimates already show that consumption and services may take a long time to recover.
• Many companies’ balance sheets have been severely damaged even considering a recovery.
• The V-shaped recovery estimates assume a return of capital expenditure and household consumption that is inconsistent with the debt and unemployment situation.