We've had three S&P 500 earnings recessions without economic recessions since 1974
Regarding a potential decline in S&P 500 earnings, here's Morgan Stanley's Adam Parker:
...There have been only three periods since 1974 in which net income declines were not associated with a recession (Exhibit 1). In each of these three periods of net income declines without a recession (1986, 1998, 2012), S&P 500 performance improved in the year prior to the beginning of the decline. Performance during the period climbed as well: the S&P 500 rose from the beginning to the end of each of the three periods. In fact, performance declined in only 3 quarters out of the 16 total quarters represented.
Performance following the earnings recession was also generally strong. The first period did see modest decline in the S&P 500 one year later, attributable to the "Black Monday" crash of 1987. However, in the latter two periods of net income declines not associated with an economic recession, rather than portend market weakness, the net income declines were followed by S&P 500 increases of 6% and 22%, respectively, four quarters later. While this is obviously a small sample size, the notion that an earnings recession without an actual recession is definitively bad for the market isn't actually borne out by these data....
Morgan Stanley
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