Will the S&P 500 crash in 2026? History suggests earnings growth lowers bear-market risk.

Markets have experienced a lot of volatility over the past month, driven primarily by the war in Iran. In late March, the S&P 500 closed about 9% below its all-time high. While that level does not meet the commonly accepted definition of a correction, it has felt like one to many investors.

Key takeaways

• Corrections of 10% typically occur about once a year. U.S. stocks enter a 20%-plus bear market drop on average about every six years.
• Corrections often occur during both good and bad economic conditions. Bear markets more typically occur only when there is a recession, an earnings contraction, or another major event.
• Strong earnings growth tends to limit the depth of stock market declines.
• S&P 500 earnings growth is expected to be in the double digits over the next two years.

History: earnings growth can coincide with corrections

Over the long term, stock market performance is driven by earnings growth. If corporate earnings are growing steadily, it can limit the downside that might otherwise be seen during periods of market stress.

Recent examples show that stocks can fall even while earnings growth continues:

• 1994: +39.8% EPS growth; 9% pullback in the first half of the year
• 1997: +2.6% EPS growth; 10% correction late in the year
• 1999: +27.7% EPS growth; 12% correction in the second half of the year
• 2004: +20.1% EPS growth; 8% pullback in mid-year
• 2011: +12.4% EPS growth; 19% correction; near-bear market
• 2018: +20.5% EPS growth; 20% correction in the fourth quarter

Positive earnings growth does not necessarily prevent stocks from approaching a bear market. In the cases of 2011 and 2018, however, much of the losses were recovered relatively quickly:

• 2011: Bottom in October; new all-time high in February 2012.
• 2018: Bottom in December; new all-time high in April 2019.

Deeper bear markets have tended to follow earnings breakdowns

Deeper bear markets have typically been associated with earnings declines and recessionary or crisis conditions. Examples include:

• 2000–2002 (Tech bubble): Earnings fell 51% in 2001; the S&P 500 dropped 49%.
• 2007–2009 (Housing crisis): Earnings fell 19% in 2007 and 77% in 2008; the S&P 500 fell 51%.
• 2020 (COVID-19 pandemic): Earnings fell 32%; the S&P 500 fell 32%.
• 2022 (Inflation spike): Earnings fell 13%; the S&P 500 fell 24%.

In short, if earnings deteriorate and/or a recession occurs, a deep bear market becomes more likely.

Will the S&P 500 crash in 2026?

FactSet estimates currently call for S&P 500 earnings growth of 17% in 2026 and another 17% in 2027. If those estimates hold, they would support the view that a major stock market crash in 2026 is less likely.

However, the war in Iran has also highlighted how quickly conditions can change. If events lead to lower earnings estimates, investors may need to become more cautious.