One reason for the record-setting stock market crash we witnessed in the first quarter was a rapid reappraisal of the earnings situation for the . As I noted here back in January, stocks were discounting about a 30% jump in earnings growth over the coming six months, a pretty Herculean assumption. When COVID-19 destroyed the prospect of earnings growth for the first half and introduced the distinct probability of a major earnings decline, the S&P 500 was forced to adjust and in dramatic fashion.
However, it appears that the index is now discounting just a 9% decline in earnings going forward. With many businesses shut down completely at present and for at least the rest of the month, this could still prove to be a very optimistic assumption. Earnings growth could easily turn much more deeply negative than that.
Then again, stocks don’t always have to match the decline in earnings. Obviously, if earnings fall 90%, as they did during the Great Financial Crisis, the stock…
