Why double-digit earnings growth won't stop the next bear market

Double-digit earnings growth has often signaled the late phase of a bull market rather than its immediate continuation, a theme this column expands upon. FactSet, based on results from 94% of S&P 500 companies, estimates year-over-year EPS growth for Q1 at 28.4%, the strongest pace since the fourth quarter of 2021. The piece notes that the 2022 bear market began the month after such a spike in earnings growth, and it contrasts this with March 2000, when YoY EPS growth reached 32.8%. Ned Davis Research provides a chart illustrating how earnings momentum has correlated with subsequent returns, framing these data points in historical context. Analysts still expect earnings growth above 20% in each of the next three quarters, according to consensus, highlighting the market’s forward-looking bias. The article stresses that robust yet accelerating earnings do not guarantee market gains, and the inverse relationship between growth rates and S&P 500 performance is consistent with historical patterns. A table of valuation indicators—each choice with a historically significant track record—shows an average bearish reading near 99% relative to its long-run distribution. Taken together, the analysis suggests the S&P 500 could remain on thin ice over the coming quarters.