You don't have to trade GameStop, SPACs, or Bitcoin for big returns: Morning Brief

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The stock market continues to set new record highs

From GameStop (GME) to Bitcoin (BTC-USD) to SPACs and everything in between, it's hard to keep track of all the wild market moving headlines that have crossed in 2021 so far.

But amid this backdrop, there's another massive story: the stock market continues to climb to new highs.

On Friday, the S&P 500 (^GSPC) closed at a record high of 3,934. Year-to-date, that's an impressive 4.7% gain. The market has already blown past the year-end targets of a handful of Wall Street strategists, and we're only halfway through February.

This comes as earnings smash expectations and the prospect for further earnings growth is robust.

"While investors continue to debate how soon business activity will return to 'normal,' the 4Q 2020 earnings season surprisingly revealed that S&P 500 profits have already surpassed their pre-pandemic level," Goldman Sachs' David Kostin wrote on Friday. "65% of S&P 500 firms reported EPS more than a standard deviation above consensus, ranking just behind 3Q 2020 as the best quarter in at least 23 years."

Kostin also raised his estimate for S&P 500 2021 earnings per share (EPS) to $181. This marks his second revision since unveiling his 2021 targets just three months ago. And he isn't alone. Kostin notes consensus estimates for S&P 500 EPS in 2021 "have jumped by $5 in the last few weeks as strong 4Q results have led to positive earnings revisions in 10 of 11 sectors."

And he thinks the good news could keep coming.

"With the market already expecting a strong rebound, what is the next upside catalyst for US equities? One possible answer is fiscal stimulus," Kostin said. "[Last] week our economists lifted their expectations for near-term fiscal stimulus to $1.5 trillion. They also revised their forecast for 2021 US real GDP growth to 6.8%, including an 11% annualized rate in 2Q."

Though he notes some parts of the stock market will fare better than others from stimulus.

"If every dollar of the estimated $1.5 trillion package were added to corporate revenues, S&P 500 earnings would rise by about 4%, but this likely overstates the actual eventual impact," Kostin said. "The industry composition of the S&P 500 means index EPS gains will be less than the stimulus-enhanced economic recovery. In contrast, the economic sensitivity of small-caps helps explain why the Russell 2000 has risen by 16% YTD."

Nevertheless, earnings seem to be telling us we're early cycle.

Sure, GameStop, Bitcoin and SPACs are all assets making traders mountains of money. But while some may be desperate for better returns, being broadly diversified (e.g. investing in an S&P 500 index fund) continues to be a winning strategy.

By Yahoo Finance Live, managing editor. Follow him at @yahoofinancelive

What to know today

Economy

8:30 a.m. ET: Empire Manufacturing, February (6.0 expected, 3.5 in January)
4:00 p.m. ET: Total Net TIC Flows, December ($214.1 billion in November)
4:00 p.m. ET: Net Long-Term TIC Flows, December ($149.2 billion in November)

ALSO: Walmart earnings, retail sales, and housing data: What to know this week

Earnings

Pre-market

6:30 a.m. ET: CVS (CVS) is expected to report adjusted earnings of $1.24 per share on revenue of $68.77 billion
6:30 a.m. ET: Advance Auto Parts (AAP) is expected to report adjusted earnings of $1.97 per share on revenue of $2.37 billion
Before market open: Palantir (PLTR) is expected to report adjusted earnings of 2 cents per share on revenue of $300.8 million

Post-market

4:00 p.m. ET: Devon Energy Corporation (DVN) is expected to report adjusted earnings of 3 cents per share on revenue of $1.22 billion
4:00 p.m. ET: Avis Budget Group (CAR) is expected to report an adjusted loss of 4 cents per share on revenue of $1.26 billion
4:15 p.m. ET: Occidental Petroleum (OXY) is expected to report an adjusted loss of 58 cents per share on revenue of $4.31 billion
4:15 p.m. ET: American International Group (AIG) is expected to report adjusted earnings of 93 cents per share on revenue of $10.70 billion