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Illustration: Aïda Amer/Axios

The stock market's magnificent bounce in 2019 has been hard to explain and fueled largely by factors like stock buybacks and central bank easing.

The big picture: But to see an increase in their share prices next year, U.S. companies will have to actually increase their earnings, experts say, a factor that's been notably absent from this year's rally.

By the numbers: As of Tuesday's close, the S&P 500 has risen 25% while U.S. corporate earnings growth has been negligible. Data from FactSet shows the S&P's earnings will likely be negative in every quarter this year — the first time it has fallen in four straight quarters since 2015–2016.

  • To be sure: Companies have seen earnings growth this year, but that has been almost entirely due to stock buybacks, Jill Carey Hall, U.S. equity strategist at BAML, tells Axios. "Pretty much all of it."

State of play: U.S. economic growth also has slowed, as businesses have cut back on investment and capital expenditures, and started boosting their cash holdings.

  • The market hasn't been fueled by a rush of irrational exuberance either. Traders have been net sellers of stocks in every month this year, pulling a record $130 billion from equity mutual funds and ETFs through the end of October, data shows.

What happened: 2019 was all about the rise in multiples, as the S&P 500's price-to-earnings ratio rose over the course of the year.

  • "The Fed was a big contributor" to that theme, Hall says, having cut already low U.S. overnight interest rates three times this year and added nearly $300 billion of bonds to its balance sheet.

What's next: In 2020, analysts expect the Fed to remain on the sidelines through the year and for multiple expansion to cool.

  • Gains in the stock market will come largely from U.S. economic growth and earnings, which fund managers at BlackRock see growing at 8%, combined with an average dividend yield that rivals the U.S. 10-year Treasury note and continued share buybacks from companies.
  • There are no expectations for a meaningful trade war resolution, just a ceasefire that allows the U.S. to grow "around trend," or close to 2% for the year.

The bottom line: "The handoff for growth that we see in 2020 is a meaningfully less powerful driver than multiples were in 2019, which is why the expectations for this coming year are more muted than we’ve seen in 2019," BlackRock's global chief investment strategist Mike Pyle tells Axios.

Go deeper:

Go deeper

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Photo: Fars News Agency via AP

The assassination of Mohsen Fakhrizadeh, the architect of Iran’s military nuclear program, is a new height in the maximum pressure campaign led by the Trump administration and the Netanyahu government against Iran.

Why it matters: It exceeds the capture of the Iranian nuclear archives by the Mossad, and the sabotage in the advanced centrifuge facility in Natanz.

Scoop: Biden weighs retired General Lloyd Austin for Pentagon chief

Lloyd Austin testifying before Congress in 2015. Photo: Chip Somodevilla/Getty Images

Joe Biden is considering retired four-star General Lloyd Austin as his nominee for defense secretary, adding him to a shortlist that includes Jeh Johnson, Tammy Duckworth and Michele Flournoy, two sources with direct knowledge of the decision-making tell Axios.

Why it matters: A nominee for Pentagon chief was noticeably absent when the president-elect rolled out his national security team Tuesday. Flournoy had been widely seen as the likely pick, but Axios is told other factors — race, experience, Biden's comfort level — have come into play.

Updated 3 hours ago - Politics & Policy

Coronavirus dashboard

Illustration: Sarah Grillo/Axios

  1. Health: WHO: AstraZeneca vaccine must be evaluated on "more than a press release."
  2. Politics: Supreme Court backs religious groups on New York COVID restrictions.
  3. World: Thailand, Philippines sign deal with AstraZeneca for vaccine.
  4. Economy: Safety nets to disappear in December Black Friday shopping across the U.S., in photosAmazon hires 1,400 workers a day throughout pandemic.
  5. Education: National standardized tests delayed until 2022.