S&P 500 Earnings Decline Year-Over-Year
Corporate profits contract
Two consecutive quarters of negative year-over-year S&P 500 EPS growth is sometimes called an 'earnings recession.' It has occurred during approximately 70% of economic recessions and occasionally outside of them (2015-16 energy sector collapse).
What history says
Editorial commentary written by ALAN analysts. Figures cited below are analyst-authored context — they are not derived from the chart above and may reflect different windows or sources.
Over any 10-year period, stock price growth converges to earnings growth plus dividend yield. An earnings recession means the fundamental driver of stock prices is contracting.
The 2015-16 earnings recession was concentrated in energy (oil crash) and barely affected the broader market. The 2008 earnings recession was economy-wide and devastating.
Sell-side analysts tend to cut estimates gradually, meaning the first quarter of reported declines is often followed by further estimate cuts. The trough in estimates typically comes 2-3 quarters after the first negative print.
Gauge the breadth before reacting: an earnings decline concentrated in one sector, as in the 2015-16 energy episode, has meant little for diversified portfolios, while a broad-based decline is a genuine regime change. Check whether your sector weights have drifted toward wherever the earnings damage is concentrated — that drift, not the headline, is the actionable exposure.