A Look at Earnings in a Bear Market

June 21, 2022

By Tim Courtney, Chief Investment Officer


On Tuesday, the S&P 500 fell for a fifth straight trading day, produced a -10% return over a week and moved into bear market territory, having fallen more than 20% from its high in January. 1 Market volatility has now made 7% or greater moves, both higher and lower, over the course of a week.  Inflation remains the driver; the market is trying to gauge its effect on interest rates, spending and profit margins. The biggest concern now is whether inflation will lead us into a recession.

Some think we may already be in a recession. Starting in Q1 of 2020, we experienced a very strange cycle of a deep recession coupled with a 30-day bear market. This was followed by a spending splurge and 18-month market doubling, which turned into another bear market. Regardless of where exactly we are in this unique cycle, markets have already priced in a good amount of damage to earnings. Speaking of earnings, the reason we hold stocks, let’s look at the current earnings situation.

In 2021, we witnessed record earnings (and record profit margins) across the board in mega-cap, large-, mid- and small-cap companies. The S&P 500 Index ended the year with operating earnings of $208, bettering 2019 by $50. This would inevitably be a difficult act to follow in 2022, so initial earnings growth estimates for the year began in the relatively modest range of 5-6% growth.2 This was roughly in line with the average annual growth rate over the last century.

Within the first months of 2022, however, we saw earnings growth estimates actually increasing despite the persistent supply chain issues and the start of the war in Ukraine, with some estimates even reaching double-digit growth.3 Part of that growth was due to accelerating inflation, with stocks capturing it in higher sales. Another part was due to consumers who still seemed to be in a healthy position to continue spending. Even in today’s climate, spending has remained strong except for a slight dip in May retail sales due to weakening auto sales.4

Recently, earnings growth expectations for 2022 have begun to fall5 due to inflation and concern that consumers won’t be able to keep spending.6 Profit margins have also come down but still remain above average margins of the last 15 years.7

After rising to about $230, S&P 500 operating earnings estimates now sit around $224.7 This would represent approximately 7.5% growth over 2021. However, the market is telling a different story and indicates that earnings should fall meaningfully.

As we began the year, markets were priced for fairly good news, but instead, we have seen a war and high inflation. Prices of many speculative assets have experienced a necessary drop. The prices of important productive companies have also been pulled lower and, in many cases, are now priced for bad news. We will continue to monitor and report the drivers of near-term earnings. If you have any questions, please contact your Exencial advisor.



  1. Yahoo! Finance (6/14/22) – Stocks end mixed after bear market slide
  2. FactSet (1/28/22) – S&P 500 earnings season update: January 28, 2022
  3. FactSet (5/6/22) – S&P 500 earnings season update: May 6, 2022
  4. Bureau of Economic Analysis (6/9/22) – Consumer spending
  5. Yahoo! Finance (6/7/22) – The stock market’s concerning earnings overhang
  6. U.S. Bureau of Labor Statistics (6/9/22) – Consumer price index
  7. S&P Global Ratings (6/14/22) – Estimates and pes



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