151 Years of S&P 500 Data Show 20% Slumps Track Double-Digit Earnings Drops
Updated
Updated · Investing.com · Aug 15
151 Years of S&P 500 Data Show 20% Slumps Track Double-Digit Earnings Drops
3 articles · Updated · Investing.com · Aug 15
Summary
A 151-year review of S&P 500 data found every calendar-year decline worse than 20% came with a double-digit drop in reported earnings, making profit damage the key marker of major corrections.
The analysis argues severity matters more than direction: when earnings fell less than 10%, none of 25 years produced a market loss worse than 10%, while earnings drops above 25% were the only bucket with a negative average return.
That weakens simpler up-or-down earnings rules, because the market still rose in 66% of years when earnings fell and only rose 79% of years when earnings increased.
Several apparent exceptions fit the pattern once timing is considered: 1937, 1974 and 2002 either preceded or followed sharp earnings collapses, while 2022 still showed a 12.7% decline in trailing reported earnings despite looking rate-driven on forward estimates.
For investors, the report says estimate revisions and credit spreads matter more than headline fears about capex, deficits or oil, because markets usually price the earnings downturn before reported profits confirm it.
If corporate profits truly drive stock markets, why do major selloffs often begin long before the actual earnings damage is officially reported?
Since waiting for bad earnings data guarantees losses, which hidden credit market signals secretly predict massive stock selloffs before they even begin?
With valuation ratios near dot-com extremes, could skyrocketing multiples trigger the next massive market crash even if corporate earnings remain perfectly stable?