S&P 500 earnings boom defies historical patterns
Unlike post-crisis rebounds, current surge follows modest estimate dip; valuation reset occurred via price declines, not profit collapses.
The S&P 500 is recording its strongest forward earnings per share growth since 1990, excluding the anomalous periods following the global financial crisis and the pandemic. Wall Street’s forecast for index profits over the next 12 months has climbed to approximately $373 per share, representing a 32% increase year-on-year. This trajectory marks a distinct departure from historical norms, as the current expansion is not predicated on a recovery from severe profit cuts.
Kevin Gordon, head of macro research and strategy at the Schwab Center for Financial Research, highlighted the structural difference in recent market data. Previous periods of robust growth were preceded by massive plunges in earnings per share estimates, which fell by 38% around the financial crisis and 22% during the pandemic. In contrast, the dip preceding the current boom was only about 6%, suggesting a more organic underlying strength in corporate profitability rather than a statistical rebound from a trough.
The market did undergo a significant valuation reset, but it occurred through stock price declines rather than collapsing earnings. During the S&P 500’s 25% bear-market slide from January through October 2022, forward earnings estimates actually rose by approximately 5% before ultimately falling just 6%. This dynamic compressed the index’s forward price-to-earnings ratio from about 21.5 times earnings to 15.3 times, meaning equities became cheaper relative to expected profits before the outlook materially weakened.
Growth is currently broad-based across the index, with all 11 sectors showing positive forward earnings growth and eight recording double-digit rates. The technology sector leads the charge with roughly 82% growth, driven in part by the semiconductor industry’s substantial profit surge. Meanwhile, the Magnificent Seven are growing around 44%, compared with roughly 21% for the equal-weight S&P 500.
The 21% growth figure for the equal-weight index indicates that the earnings boom extends well beyond the megacaps, even as the largest companies continue to drive headline metrics. This landscape presents a different challenge for investors compared to previous cycles. With earnings season underway and major technology results imminent, companies must now deliver the profits that analysts have already pencilled in, rather than relying on a rebound from crushed forecasts.
