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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

Scoop: Biden briefing calls for 20,000 child migrant beds

President Biden, during a virtual meeting with Mexican President Andrés Manuel López Obrador. Photo: Anna Moneymaker-Pool/Getty Images

A briefing scheduled for President Biden this afternoon outlines the need for 20,000 beds to shelter an expected crush of child migrants crossing the U.S.-Mexico border, Axios has learned.

Why it matters: The rapid influx of unaccompanied children is building into the administration's first new crisis. A presentation created by the Domestic Policy Council spells out the dimensions with nearly 40 slides full of charts and details.

FBI director: Jan. 6 Capitol attack was domestic terrorism

The FBI views the Jan. 6 Capitol siege as an act of domestic terrorism, director Christopher Wray testified in his opening statement Tuesday before the Senate Judiciary Committee.

Why it matters: The FBI's designation of the attack as domestic terrorism puts the perpetrators "on the same level with ISIS and homegrown violent extremists," Wray said.

Sen. Martin Heinrich to introduce plan for Puerto Rico statehood

U.S. Sen. Martin Heinrich (D-N.M.) at a hearing on Feb. 23, 2021 in Washington, D.C. PHOTO: Jim Watson-Pool/Getty Images

U.S. Sen. Martin Heinrich (D-N.M.) and Rep. Darren Soto (D-Fla.) announced Tuesday they would introduce legislation to start the motions for Puerto Rico statehood.

Why it matters: More than 52% of Puerto Ricans voted last November in favor of statehood, three years after Hurricane Maria struck the island and caused one of the worst natural disasters in recorded history. It exposed the island's vulnerable position as a U.S. territory and its lack of resources to battle poverty.