Earnings helped lift the overall stock market last week. If the U.S. economy is not entering a recession, buying when the market is down ten percent is an opportunity based on history. Currently, a recession does not look likely. Actual results from the current earnings season should support stocks.

The S&P 500 is 8% lower than its high, but the S&P 500 has typically fallen almost fifteen percent intra-year annually. Long-term investors should focus on keeping purchasing power rather than short-term volatility, with stocks historically providing the highest after-inflation returns.

The CPI release reflected more persistent pricing pressures. The new wrinkle is the decline in consumer spending. Low unemployment and high inflation still keep the Federal Reserve on the path of raising rates in March. This environment has led to a rotation from growth stocks to value stocks.

Fourth-quarter earnings are slated to grow at over 21% year-over-year. Despite cost pressures and supply chain disruption challenges, actual results should still exceed these levels. Banks’ earnings growth is better than it appears, while the industrials are worse.

Dividend stocks and quality companies have performed well during tightening cycles. If the Fed hikes cause concern about a policy leading to a recession, quality should benefit. Valuations should be a tailwind to value stocks as they sell at the lowest valuation relative to growth stocks since 2000.