Decline in earnings may be positive for stocks

An earnings recession may actually be bullish for stocks.

This is according to an article by Mark Hulbert at MarketWatch.

According to Hulbert, analysts’ consensus estimate for US first-quarter corporate earnings are for them to decline by 4.6 percent from a year earlier. Second-quarter earning are expected to decline 1.9 percent from a year earlier.

However, Hulbert says that, based on data from Ned Davis Research, over the last eight decades, the S&P 500 has performed best during quarters in which quarterly earnings are between 20 percent lower and 5 percent higher than they were a year earlier.

In fact, S&P 500 returns tend to be greater when earnings are weaker.

The exception to this pattern is when the year-over-year decline in earnings is 20 percent or more, which tend to produce the worst S&P 500 performances.