If last week’s move was driven by positioning, the next phase comes down to expectations.
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Earnings forecasts still reflect a stronger environment than what markets are currently facing. Right now, analysts expect companies in the S&P 500 to collectively earn about $309 per share in 2026, which is essentially a bet on steady economic growth, manageable costs, and stable demand.
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The issue is that those assumptions were made before the recent rise in oil prices and broader cost pressures. If energy stays elevated or growth slows, those profit expectations may be too high.
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When that happens, the adjustment usually comes through earnings revisions — analysts lowering their estimates as companies report and update guidance. Markets don’t wait for the earnings to actually drop; they tend to reprice as soon as expectations start moving lower, which is why changes in forecasts often matter more than the numbers themselves.
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That process rarely happens all at once. It typically unfolds gradually, then accelerates as companies begin reporting and updating guidance. As those revisions come through, they tend to reset how the market is priced, which is why the difference between a durable recovery and a short-term bounce usually shows up in fundamentals rather than price action alone.
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The technical backdrop also hasn’t fully recovered. The market remains below its 200-day moving average, and historically, breaks below that level that aren’t quickly reversed have more often led to further downside than immediate recoveries. With only a few weeks since that break, there hasn’t been enough time to confirm whether the recent move has repaired that damage or simply paused it.
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At the same time, this isn’t a one-sided setup. Most corrections don’t turn into full bear markets, and rebounds are common once selling pressure exhausts itself. The recent rally fits that pattern — a reset after a sharp decline — but it doesn’t, on its own, confirm that the broader correction is over.
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What matters now is how expectations adjust. If companies hold up better than feared and cost pressures stabilize, the market can build on this rebound. If earnings estimates begin to move lower while oil remains elevated, the recent strength is more likely to prove temporary.
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The shift is from positioning to fundamentals. Last week relieved pressure. The next move will depend on whether the underlying outlook begins to align with it.
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Image below shows that the market doesn’t just react to earnings levels—it tracks the change in earnings, with drawdowns consistently lining up with periods where forward EPS turns negative. In practice, markets tend to bottom before earnings do, but sustained upside usually doesn’t happen until earnings revisions stabilize and turn higher.

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