The geopolitical shock of early 2026 was real. The Iran conflict and the Strait of Hormuz disruption rattled markets, sent oil prices higher, and produced the kind of headline risk that historically triggers indiscriminate selling. The S&P 500 fell sharply from its late January peak.
But the selloff had one critical characteristic that separated it from genuinely dangerous market environments: earnings did not break. Corporate profits continued to grow. Analyst estimates for 2026 and 2027 held firm. And when the geopolitical picture started to stabilize, the market did not need a long recovery period. It needed about three weeks. The index rallied 13% from its late-March lows and hit a new all-time high on April 17.
That is not a coincidence. It is the earnings mechanism working exactly as history says it should.
The 25-Year Case: Earnings and Price Are Inseparable
The long-term chart of S&P 500 price versus trailing 12-month earnings is one of the most important pictures in investing. It shows that stock prices follow earnings over time. The two lines diverge during periods of fear and euphoria, but they come back together.
The 2008 financial crisis produced a genuine earnings collapse, and the recovery took years because the earnings recovery took years. COVID produced a sharp drop in both price and earnings, followed by a historically fast rebound in both. In each, the mechanism is the same: earnings set the floor, earnings set the ceiling, and price eventually adjusts to reflect the underlying reality.
Chart 1: S&P 500 Price vs. Trailing 12M Earnings (2000-2026) | Sources: S&P Global, Bloomberg, Gryphon Financial Partners
The current episode, labeled “Resilient Despite Geopolitical Risks” on the chart, fits the same pattern. Earnings did not fall. Price corrected on fear, then recovered as that fear proved to be larger than the fundamental damage. The market is now at a new high because earnings support a new height.
The Valuation Reset Was the Signal
When the S&P 500 dropped roughly 9% peak to trough earlier this year, the forward P/E ratio compressed from around 23x to the low-19x range, a contraction of approximately 17%. That compression happened not because earnings estimates fell, but because price fell while earnings increased.
That kind of valuation reset, price declining without a corresponding decline in earnings, is historically one of the cleaner entry signals available. The market was offering the same earnings stream at a materially lower price. Investors who recognized that and stayed invested, or added exposure, captured the full 13% recovery to new highs.
Chart 2: Forward P/E Ratio vs. S&P 500 Price Level | Sources: Gryphon Financial Partners, Bloomberg
The title on this chart says “The Market Is Growing Into Its Valuation.” What the recovery to all-time highs confirms is the other side of that dynamic: the earnings growth that was already projected is now being reflected in price. The market corrected to a more reasonable multiple and then climbed back as the earnings story remained intact. That is the sequence playing out in real time.
The Forward Earnings Picture Has Not Wavered
Through the entire period of market volatility, from the Iran conflict in late February through the selloff trough and the recovery to new highs, the consensus earnings trajectory barely moved. That is the most important data point in this entire discussion.
The S&P 500 earned $274.54 in 2025, largely already in the books. The 2026 estimate stands at $324.30, representing 18% growth over 2025. The 2027 estimate has moved to $376.35, projecting another 16% on top of that. Double-digit earnings growth for two consecutive years, with the estimates holding firm through a significant geopolitical shock.
Chart 3: S&P 500 EPS Progression (2025, 2026 & 2027) | Sources: Strategas, FactSet
Notice what did not happen on this chart during the selloff: the lines did not collapse. The 2026 and 2027 estimates have been remarkably stable, and if anything, they continued to move higher. Early Q1 earnings reports have generally come in ahead of expectations, with companies like Taiwan Semiconductor and PepsiCo both beating on earnings and revenue. The fundamental backdrop for corporate profitability remains constructive.
Estimates will continue to be revised as tariff policy clarifies and more earnings reports come in. But the direction of the revision cycle, upward for both 2026 and 2027, is the data point that matters most.
What Investors Should Take Away
The lesson from the past several weeks is one that the long-term earnings chart has been teaching for 25 years: the investors who get hurt in market corrections are not the ones who stayed invested through volatility. They are the ones who sold on fear and missed the recovery.
The S&P 500 is at an all-time high today. Anyone who sold at the trough is now faced with re-entering at a higher price than where they exited, having locked in losses and missed the recovery. The alternative, staying invested in a portfolio positioned for earnings growth, produced the better outcome by a wide margin.
This does not mean markets cannot fall from here. Tariff policy remains fluid. The Iran situation is not fully resolved. Geopolitical risk does not disappear because the market hit a new high. But the framework for evaluating these risks has not changed: when earnings are growing and the fundamental case for corporate profitability is intact, market dislocations driven by fear tend to be temporary.
Earnings drove the selloff narrative. Earnings drove the recovery. And consensus expectations for 16% to 18% annual earnings growth through 2027 tell you what the market is likely to do next.
Disclosure
This material is provided by Gryphon Financial Partners, LLC (“Gryphon”) for informational purposes only. It is not intended as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy, or investment product. Facts presented have been obtained from sources believed to be reliable, though Gryphon cannot guarantee their accuracy or completeness. Gryphon does not provide tax, accounting, or legal advice. Individuals should seek such guidance from qualified professionals based on their specific circumstances.