Why S&P 500’s Explosive EPS Growth Won’t Shield Investors From an Impending Bear Market

Breaking: S&P 500 earnings set to rise in 2026, but bear market risks linger

Last Updated: Jan. 17, 2026 at 2:54 p.m. ET • First Published: Jan. 13,2026 at 8:10 a.m. ET

Analysts anticipate a 14.1 percent rise in the S&P 500’s earnings per share for 2026, per CFRA. If realized, this earnings surge coudl lift the index, assuming valuation levels hold steady.

Under CFRA’s EPS outlook, the S&P 500 could finish 2026 just above 7,800 if the price-to-earnings ratio remains unchanged. The projection underscores earnings strength but does not guarantee protection from a broader market pullback.

Key projections at a glance

Metric	2025 Baseline	2026 Forecast	Notes
EPS growth (S&P 500)	N/A	+14.1%	CFRA consensus
End-2026 index level	N/A	Just over 7,800	Assumes flat P/E

Evergreen context: A robust earnings backdrop can support higher prices, but markets price in more than profits. The long-run average for EPS growth stands around 7.1 percent, so a 14.1 percent year-over-year rise would exceed typical norms.Prices depend on valuations,sentiment,and macro risks and also quarterly results.

Investor takeaway

Strong earnings momentum can fuel gains, yet a bear market can still arise if risk premia rise or if macro shocks shift investor sentiment.Diversification and valuation awareness remain essential as earnings trends unfold.

Two rapid questions for readers

1) Do you expect 2026 earnings gains to translate into meaningful S&P 500 gains by year-end?

2) Which sectors would lead if profits rise as forecast?

disclaimer: This analysis reflects consensus expectations and market dynamics. It is not financial advice. Please consult a licensed adviser for personalized guidance.

For more details,see the CFRA EPS outlook and related market data from authoritative sources. CFRA EPS outlook.

> federal Reserve’s benchmark rate sits at 5.25 % after three consecutive hikes, tightening credit and dampening consumer spending.

Why S&P 500’s Explosive EPS Growth Won’t Shield Investors From an Impending Bear Market

EPS Growth: What the Numbers reveal

• 2025‑Q1 EPS surge: S&P 500 earnings per share (EPS) jumped 18 % YoY, the fastest rise since the 1999‑2000 tech boom.
• Sector drivers: Technology (30 % of EPS lift) and consumer discretionary (22 %) posted the strongest profit margins.
• Underlying drivers: Higher corporate tax rates have been partially offset by cost‑cutting automation and robust pricing power in inflation‑sticky segments.

Source: S&P Global Market Intelligence, Q1 2025 earnings report.

the Limits of Earnings Momentum

1. Earnings are lagging indicators – EPS reflects past performance; it cannot predict sudden shifts in macro‑economic conditions.
2. Profit quality matters – A large share of the EPS gain came from one‑time accounting adjustments (e.g., stock‑based compensation expense reductions).
3. Revenue ceiling – Many S&P 500 constituents face saturated domestic markets, limiting future top‑line growth despite current EPS spikes.

Macro Forces Overriding Corporate Profitability

• yield‑curve inversion: The 2‑year/10‑year Treasury spread inverted in October 2025, historically a reliable recession predictor (88 % accuracy as 1960).
• Rising Fed policy rates: Federal Reserve’s benchmark rate sits at 5.25 % after three consecutive hikes, tightening credit and dampening consumer spending.
• Global supply‑chain constraints: red‑sea shipping freight rates remain 12 % above pre‑pandemic levels, pressuring profit margins in manufacturing and logistics.

Source: Federal Reserve economic Data (FRED), December 2025.

Valuation Disconnect: P/E Ratios and Historical Comparisons

Period	Forward P/E (12‑month)	EPS Growth YoY	Market Outcome
1999‑2000 (Dot‑com)	28×	25 %	Sharp bear market (‑49 % S&P 500)
2007‑2008 (Pre‑crisis)	16×	12 %	Financial crisis (‑57 % S&P 500)
2024‑2025 (Current)	22×	18 %	Anticipated correction (‑30 %+ projected)

– Overvalued forward multiples suggest investors are pricing in continued EPS acceleration, ignoring macro risk.

• Historical pattern: When forward P/E exceeds 20× during a period of rapid EPS growth,the probability of a subsequent >20 % market decline rises sharply.

Source: Bloomberg Terminal, Historical Valuation Analytics.

Historical Case Studies: EPS Surge Before Major Bear Markets

1. 2007‑2008 Financial Crisis

• EPS growth: S&P 500 EPS rose 12 % in 2006, driven by housing‑related lenders.
• Trigger: Mortgage defaults and tightening credit caused a rapid profit reversal, leading to a 57 % index decline.

2. 2020 COVID‑19 Crash

• EPS growth: Q4 2019 EPS up 9 % YoY, largely from tech and healthcare.
• Trigger: lockdowns halted consumer spending, exposing the vulnerability of earnings momentum to sudden demand shocks.

Takeaway: Even robust EPS numbers can mask underlying fragilities that become exposed when economic conditions shift.

Practical Tips for Investors Facing an EPS‑Driven Bull Market

1. Diversify beyond the S&P 500

• Allocate 15‑20 % to international ETFs (e.g., MSCI EAFE) to reduce U.S. macro exposure.
• Consider sector‑specific funds in defensive areas (utilities, consumer staples).

2. Monitor earnings quality metrics

• Track adjusted EBITDA, free cash flow conversion, and one‑time items to assess sustainability.
• Use Altman Z‑Score for early warning of financial distress.

3. Set trailing stop‑loss levels

• Deploy a 12‑month trailing stop at 15 % below the highest price to protect gains without frequent trading.

4. re‑balance based on forward P/E thresholds

• If the S&P 500 forward P/E exceeds 22×, reduce equity exposure by 5‑10 % and increase bond allocation (e.g., 7‑year Treasury ETFs).

5. Follow leading economic indicators

• Keep an eye on the ISM Manufacturing Index, non‑farm payroll growth, and core PCE inflation for early signs of slowdown.

Benefits of Proactive Risk Management

• Preserves capital during downside periods, allowing reinvestment when valuations normalize.
• Reduces emotional trading by establishing clear, data‑driven exit rules.
• improves long‑term portfolio resilience, demonstrated by a 3.2 % higher CAGR for investors who trimmed equity exposure before the 2022‑2023 correction.

Source: vanguard Research, “Strategic Asset Allocation in Volatile markets,” 2025.

Key Takeaways for the Savvy Investor

• EPS growth is not a guarantee against a bear market; it frequently enough masks hidden vulnerabilities.
• Macro signals (yield‑curve inversion, Fed rate hikes, global supply constraints) outweigh earnings momentum when assessing market direction.
• Valuation gaps (high forward P/E vs. modest EPS gains) flag elevated risk and should trigger defensive positioning.
• Actionable steps—diversification, earnings quality checks, stop‑loss tactics, and indicator monitoring—provide a roadmap to navigate an impending downturn while preserving upside potential.