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S&P 500 forward earnings are projected to surge 36% year over year—an unusually strong level normally seen only in post-recession recoveries—and while such rapid growth will inevitably decelerate, history suggests markets typically weather the slowdown well as long as earnings don’t materially decline into recession.
What caught our eyes this week
What happens after peak earnings growth?
The current earnings environment is one for the record books, with S&P 500 12-month forward earnings projected to be up 36% year over year. That puts us in rare territory, typically only reserved for recoveries from major recessions. Are sell-side analysts being too optimistic? Time will tell, but for now we give them the benefit of the doubt. Their track record has been solid outside of recessionary periods, so it would be highly unusual for them to collectively whiff on their forecasts in a typical growth environment. Nonetheless, at some point the party will end and earnings growth will return to more “normal” levels. Should we be concerned about an impending deceleration? History tells us that markets digest the period after a peak in earnings growth surprisingly well, with positive returns over the 12 months following eight of 10 peaks in S&P 500 forward earnings growth since 1990. Real trouble for stocks typically required material and sustained drops in earnings, or, in other words, a recession. Going from great earnings growth to good earnings growth (as we expect) doesn’t usually cause problems.
CHART OF THE WEEK: Cerity Partners, Bloomberg, January 1990–August 2026 monthly S&P 500 data
Past performance does not guarantee future results.
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