Years ago, renowned investor Sir John Templeton broke the equity market into four stages.

He said bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria. As 2019 ended, the first two stages were behind us. Stage three appeared to be unfolding. The S&P 500 ended 2019 on a four-month winning streak, as investors anticipated that 2020 S&P 500 earnings were on track for an 8% increase. Great expectations for 2020 turned to great disappointment as the spread of the COVID-19 virus overwhelmed sentiment.

The adjustment for earnings expectations happened slowly at first. Around the February 19 high for the S&P 500, only the REIT sector was expected to experience an earnings dip. A month later, with the S&P 500 down more than 1,000 points, the Discretionary, Energy, and Industrials sectors joined REITs in the list of sectors likely to post lower year-over-year earnings. Eight months later, seven of the S&P 500 sectors were projected to show 2020 earnings below their 2019 levels. Nonetheless, a record-setting recovery rally that set multiple all-time highs pushed the S&P 500 62% above its March 23 low.

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