With earnings season underway, in addition to following beats, misses and growth rates as second quarter reports stream in, we are also assessing the potential future path of earnings. That’s tricky right now given the uncertainty.

“Some expect steady mid-to-high single digit earnings gains for the foreseeable future while others see double-digit earnings contraction as soon as 2023,” according to LPL Financial Equity Strategist Jeffrey Buchbinder. “We believe the revenue environment and corporate productivity are in too good of shape for earnings to contract anytime soon.”

History shows that it takes a pretty rough economic environment to knock earnings meaningfully off track. As shown in the LPL Chart of the Day, in the more mild recessions, earnings recover within a year or two typically, with declines in the low-to-mid teens. That includes the early 1970s, which saw operating earnings decline only 13% peak to trough (on a rolling four quarters basis), the mid-1970s when earnings dipped about 15%, and 2020, which saw earnings slip 13% before a quick snapback.

In a bear case scenario, say a garden variety type recession, a 10-15% decline in earnings is a reasonable expectation. But our economic forecast still calls for no recession this year and a 50% chance next year. A soft landing will still be very difficult for the Federal Reserve to achieve, but it’s possible. And a recession could be very mild, resulting in a smaller hit to earnings.

Our base case for earnings, as laid out in Midyear Outlook 2022: Navigating Turbulence, is that modest economic growth, effective cost management, and healthy revenue growth, bolstered by pricing power, will enable corporate America to grow earnings near double-digits this year (to $225 per share in S&P 500 earnings per share) and another 4-5% next year (to $235). As the chart above illustrates, in the absence of recession, earnings tend to keep chugging higher at a mid-to-high single digit pace over the long term.

So, don’t completely dismiss the possibility that trend continues despite so many market pundits telling us otherwise. It’s very early in earnings season with results from just 88 S&P 500 companies, but a 72% beat rate is solid, while corporate America is well on track to grow earnings north of 5% year over year. The consensus estimate for 2022 earnings has barely budged in July. Bottom line, the pessimism may be overdone.

Jeff Buchbinder is an equity strategist for LPL Financial.