Sizzling projected earnings growth won’t protect stock investors from a bear market. This runs counter to the narrative many shareholders are using to argue that the stock market must not be in a bubble. They insist that, because the S&P 500’s earnings per share are projected to grow at a well-above-average pace in 2026, a bear market is most unlikely.

The current consensus expectation (according to Wall Street firm CFRA) is that the S&P 500’s EPS in 2026 will be 14.1% higher than 2025’s, double its 50-year annualized growth rate of 7.1%. If the EPS does grow that much, and even assuming that the index’s P/E ratio stays constant, the S&P 500 by the end of 2026 will trade at just over 7,800.

Unfortunately for the bulls, robust projected earnings growth doesn’t immunize the market from major declines. We only need remember Wall Street’s consensus at the end of 1999, just weeks before the dot-com bubble burst. At the end of 1999, the consensus expectation was that the S&P 500’s EPS would grow 19.0% in calendar 2000.

What actually happened: the S&P 500’s EPS for calendar 2000 rose just 3.8% higher than a year earlier — 15.2 percentage points lower than originally projected. A similarly large slip would transform this year’s projected earnings growth into an earnings recession.

When lower is higher

This is why conservative investors favor stocks trading at low P/E ratios. Take a look at the chart below, which plots the return of two portfolios — one containing the 10% of U.S. stocks with the lowest P/E ratios and the other containing the decile of stocks with the highest such ratios. The former beats the latter by more than five annualized percentage points since 1951.

Note that these returns, courtesy of Dartmouth College professor Ken French, don’t include transaction costs. So don’t be impressed by the high P/E portfolio’s 10.3% annualized return; after transaction costs its performance would be far lower. The key to the chart is the spread between the two portfolios’ returns, which would not change significantly after transaction costs are deducted.

Of course, some low P/E ratio stocks deserve their low valuations, so not every stock with a low ratio proceeds to perform handsomely. To increase the probability of focusing on low P/E stocks with good performance prospects, I constructed a table of low P/E stocks that are also recommended by at least one of the top-performing newsletters my performance auditing company monitors. Each of the 20 stocks in the table recently traded at a forward P/E ratio in the single digits — less than half the S&P 500’s ratio of 22.4. These value stocks include HP, Comcast, General Motors, MetLife, Celanese, Omnicom Group, Pfizer, Allstate, Hewlett Packard Enterprise and Peoples Bancorp.