The last time earnings were this strong, or at least as strong as they have been so far, the stock market was coming off of a strong rally. The S&P 500 market had gone straight up to the tune of 51.3% from March of 2009 to early May of 2011, save for a 17% drop that lasted 3 months from May through July of 2010. So far earnings are strong to the tune of an 18.3% blended earnings growth rate that is the strongest since the 19.5% we say in Q1 2011. That was peak earnings and this could be as well.
Peak earnings is a very simple concept. It's basically the peak of a growth cycle for a stock or a group of stocks such as an index. It is often characterized by stocks beating on the top and bottom line when they report, but guiding down for the next quarter or couple of quarter. That is certainly not happening at an epidemic pace now, but what happens when a company guides down after good earnings is the stock can't hold it's early gains. The latter is happening now, starting with the bank earnings in the first week of earnings season. It happened yesterday with Caterpillar (CAT) among others, up near 4% early, then down -6% by days end. Politics is playing a big role, but it could be the market is reading the political landscape as one that will prevent earnings from growing any further. If this is the case, the companies don't have to guide lower, the market is doing it for them. This could be peak earnings.