Key Takeaways
- Despite a sequence of profound economic shocks since 2020, US corporate earnings have demonstrated remarkable resilience, driven by a combination of aggressive cost management, strategic pricing power, and significant fiscal and monetary support.
- The headline growth in indices like the S&P 500 is heavily skewed by a handful of mega-cap technology and growth companies, masking significant divergence and pressure on smaller firms and other sectors.
- Forward-looking risks are accumulating, including the burden of refinancing corporate debt at higher interest rates, potential margin compression, and the profound uncertainty of future trade and tariff policies.
- Investor strategy should pivot from chasing broad market momentum to a focus on quality and selectivity, prioritising firms with resilient balance sheets, durable competitive advantages, and the ability to defend margins.
An objective review of the last five years reveals a business environment defined by a relentless series of dislocations. From a global pandemic and supply chain paralysis to generational inflation and a miniature banking crisis, the headwinds have been formidable. Yet, in this same period, US corporate profitability has not just survived; it has soared, with aggregate earnings per share for S&P 500 companies approaching a near-doubling from the 2020 trough. This apparent paradox warrants a deeper investigation, moving beyond the headlines to analyse the structural drivers of this resilience and question its sustainability.
Anatomy of Corporate Resilience
The ability of US corporations to navigate this gauntlet is not a single story, but a confluence of shrewd adaptation and opportune macro conditions. The initial COVID-19 shock in 2020 acted as a forced catalyst for radical operational efficiency. Firms aggressively cut discretionary spending, renegotiated contracts, and accelerated digitalisation initiatives that might otherwise have taken a decade to implement. This leaner operating base created significant leverage for when demand returned.
That return was supercharged by unprecedented fiscal and monetary stimulus. Direct payments supported consumer spending, while central bank actions suppressed borrowing costs to near zero. This environment allowed companies to not only manage their existing liabilities but also to tap capital markets for cheap debt, which was often channelled into share buyback programmes—a direct mechanism for boosting earnings per share without necessarily growing the underlying business. As inflation took hold in 2022, many larger firms with strong branding and market positions discovered they had significant pricing power, enabling them to pass on rising input costs, and then some, to the end consumer, thereby protecting or even expanding their profit margins.
A Timeline of Shocks vs. S&P 500 Earnings
The narrative of earnings growth becomes clearer when mapped against the shocks. The initial decline in 2020 was sharp but was followed by a dramatic recovery as stimulus and reopening took hold. The subsequent years show a pattern of slowing but still positive growth, demonstrating an ability to absorb new pressures.
| Period | Defining Shock(s) | S&P 500 Reported EPS (Trailing Twelve Months) | Commentary |
|---|---|---|---|
| End of 2019 | Pre-Shock Baseline | $162.97 | A stable, pre-pandemic earnings environment. |
| End of 2020 | COVID-19 Pandemic | $139.78 | The sharpest earnings decline of the period. |
| End of 2021 | Supply Chain Crisis & Reopening | $208.54 | A massive rebound fuelled by stimulus and pent-up demand. |
| End of 2022 | Inflation & Fed Hikes Begin | $219.05 | Growth slows as cost pressures and monetary tightening bite. |
| End of 2023 | SVB Crisis & Rate Stability | $220.42 | Earnings growth flattens amidst banking sector jitters. |
| 2024 (Estimate) | Sustained Higher Rates | ~$245.00 | Forecasts suggest a re-acceleration led by tech and growth. |
Source: Data compiled from S&P Dow Jones Indices and FactSet earnings reports. 2024 figure is a consensus estimate.
The Great Divergence Beneath the Surface
The impressive aggregate figures, however, conceal a critical divergence. The performance of the market-cap weighted S&P 500 has been disproportionately driven by a small cohort of mega-cap technology firms. Companies like Microsoft, Apple, and NVIDIA have contributed an outsized portion of the index’s total earnings growth, benefiting from secular trends in cloud computing, artificial intelligence, and digital ecosystems that were largely insulated from, or even accelerated by, the pandemic and its aftermath. According to Schwab, “the ‘Magnificent Seven’ stocks…accounted for a stunning 60% of the S&P 500’s total return in 2023.” [1]
When viewed through the lens of an equal-weight index, where a behemoth has the same influence as a smaller constituent, a more challenging picture emerges. Many firms in cyclical sectors such as industrials, materials, and consumer discretionary have faced severe margin pressure from rising wages, energy costs, and fluctuating demand. This bifurcation suggests that the resilience story is less about the whole of corporate America and more about the stunning success of its largest members.
Accumulating Risks and Forward Implications
While past performance has been robust, the foundation of that growth is facing new tests. The era of cheap money is over. Corporations are now facing a wall of debt that must be refinanced at significantly higher interest rates over the coming years, which will inevitably pressure margins and capital allocation decisions. According to Deloitte’s US economic forecast, while a recession may be avoided, growth is expected to slow as “higher interest rates continue to restrain private domestic demand.” [2]
Furthermore, the prospect of a “tariff shock” in 2025 looms as a significant and unpredictable variable. A renewal of trade disputes could disrupt newly reconfigured supply chains, impose direct costs on importers, and invite retaliatory measures that harm exporters. This is not a risk that can be easily modelled, and it threatens to unwind the margin gains that firms have fought to secure.
For investors, the key takeaway is that the period of lifting all boats is likely over. The market is no longer a monolith, and success will demand a granular focus on individual company fundamentals. The emphasis must shift towards identifying firms with durable competitive advantages, robust balance sheets capable of withstanding higher financing costs, and genuine pricing power that is not solely reliant on a high-inflation environment.
As a concluding hypothesis, the coming cycle may be defined by a great consolidation. As organic growth becomes harder to achieve and antitrust concerns limit mega-caps from acquiring direct competitors, they may turn their attention to M&A in adjacent or entirely new sectors. Cash-rich market leaders could begin acquiring innovative but capital-starved mid-cap firms, transforming themselves from focused technology or consumer giants into the diversified industrial conglomerates of the 21st century. This would be a profound structural shift, rewarding investors who can identify the acquirers and their targets ahead of time.
References
[1] Schwab. (n.d.). Stock Market Update. Retrieved from https://www.schwab.com/learn/story/stock-market-update-open
[2] Deloitte. (2025). United States Economic Forecast, 1st Quarter 2025. Retrieved from https://www2.deloitte.com/us/en/insights/economy/us-economic-forecast/2025-q1.html
[3] FactSet. (2024, June 27). Earnings Insight. Retrieved from https://advantage.factset.com/hubfs/Website/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_062725C.pdf
[4] Rothschild & Co. (2024, October). Corporate earnings growth is broadening. Retrieved from https://www.rothschildandco.com/en/newsroom/insights/2024/10/wm-strategy-blog-corporate-earnings-growth-broadening/
[5] U.S. Bank. (n.d.). Focus on corporate earnings. Retrieved from https://www.usbank.com/investing/financial-perspectives/market-news/focus-on-corporate-earnings.html
FinFluentialx. (2024, October 2). In the last 5 years, US businesses has to deal with all of these shocks… [Post]. Retrieved from https://x.com/FinFluentialx/status/1840481984830955996
