Median Earnings Growth Finally Turns Up

For the first time in over three years, median earnings growth has turned positive. That shift marks a turning point in what’s been the most narrow earnings recovery in history. While cap-weighted earnings growth has looked solid, the median stock has been in a prolonged earnings recession - the longest stretch on record where median earnings contracted while the index-level earnings expanded.

Prior cycles saw this divergence last about six months; this one persisted for more than a year. Put simply: the recovery has looked strong at the top, but weak underneath. The number of months with contracting median earnings ranks alongside recessionary peaks like 2009, 2000, and 1990. By that lens, the median stock is only now emerging from a deep and extended earnings downturn.

The good news? Longer contractions tend to lead to stronger rebounds. Historically, the deeper and more prolonged the under-earning period, the greater the catch-up growth once median earnings turn positive. The duration of our recent contraction ranks in the top quartile of history - typically seen only in full recessions. In those cases, forward median earnings growth has averaged ~15% over the next year, and the odds of improvement rise with duration.

There’s also a macro link. As we discussed in prior Charts of the Weeks, profits lead payrolls, and that’s especially true at the median level. Last fall, median earnings growth bottomed in the lowest quartile. Today, we’ve climbed into the third. That doesn’t guarantee stronger labor markets ahead, but it tilts the odds. This cycle may be finally shifting from a story of concentrated strength to one of broad-based resilience. With median earnings growth finally turning up, the recovery seems to look like it just got a lot more durable.

This information is provided for educational purposes only and is not a recommendation or an offer or solicitation to buy or sell any security or for any investment advisory service. The views expressed are as of the date indicated, based on the information available at that time, and may change based on market or other conditions. Opinions discussed are those of the individual contributor, are subject to change, and do not necessarily represent the views of Fidelity. Fidelity does not assume any duty to update any of the information.