Naysayers in the rally point with most confidence to three straight quarters of falling profits among S&P 500 firms. Out of the 17 occasions since 1937 when earnings fell for at least that long, 14 occurred within three months of a bear market. Analysts don’t expect a quarterly increase in profit until the period that ends Sept. 30.
Bulls may not take encouragement from the industries leading the market. Defensive stocks have kept the S&P 500 afloat in 2016, with shares of utility and phone companies posting gains more than double energy producers, the next-best performer. An index of utility stocks has climbed 13 percent in 2016, the best start relative to the benchmark gauge since at least 1989.
Stocks like utilities and consumer staples have a history of beating the broader index during bear markets. As the S&P 500 slumped 57 percent between October 2007 and March 2009, the three best-performing industries were staples, health-care and utilities stocks. The same thing occurred from March 2000 to September 2001, when the broader measure plunged 37 percent.
“It’s been up an awful lot, and it’ll stumble at some point,” said John Manley, who helps oversee about $233 billion as chief equity strategist for Wells Fargo Funds Management in New York. “It’s probably going to take an earnings boost to get the market much higher. We’re back to fair valuation.”