tldr response, markets are forward looking. a lot of the downtrend of a recession have already been telegraphed a mile away with ample headway (good job Feds) and hence priced in.
https://www.gurufocus.com/economic_indicators/6061/sp-500-pe...
Current market level: 4500
Current forward P/E ratio: ~19.9x
Previous market level: 3600 (October 2022)
Previous forward P/E ratio then: ~19.9x
So in 2022-10, EPS were $180
Now in 2023-06, EPS are $226
An increase in 25%, which basically matches the growth we've seen past 9 months
This actually matches pretty well with anecdotal complaints from people, about them getting 4% raises while inflation ran at 10%. All those price increases have to go somewhere, and in this case they went to corporate profits, particularly of the largest (S&P 500) firms. Which is exactly what people complain about when they say inflation is driven by corporate profits, except they get the causality wrong.
Problem is that it's inconsistent with today's stats. If inflation is now 3% but wages are going up 4% and unemployment remains the same, that means corporate profits are shrinking. It has to, by an identity - every dollar the company pays out in wages is a dollar it's not making in profit. So again the market response makes no sense - investors are assuming a future that looks like the past, while the stats indicate the near future is different from the past.
I guess you could make up for it with productivity - if a workers output 1% more goods for their efforts, prices rise by 3%, and their wages go up 4%, that just implies workers capture all the price surplus from companies, and earnings growth should be roughly flat. But the long-term trend for productivity is down (though the short-term one is up, coming off pandemic lows), so this doesn't seem like a durable explanation for being able to pay out 4% more in wages while only raising prices by 3%.
To me that describes "Apple keeps their product line the same and charges 25% more" instead of (the more likely in my opinion) "they charge the same for their existing products, keep their margins the same, but grow revenue", no?
Or for them to charge the same but grow revenue, that implies they ship more iPhones. This again implies a shift in spending from other goods to iPhones, which comes out of some other firm's revenues.
The macro environment doesn't work like that. Every dollar that someone spends on iPhone is something they don't spend on Coke, or snack foods, or Home Depot. When you aggregate across all firms, you have very few free variables. If everybody is raising their prices, that's inflation, which we saw a lot of before but the stats now say that it's coming down. If they're shipping more product in total, that's an increase in output (real GDP). Within all the total revenues that all companies take in, some goes to other firms (payments), some goes to labor (wages), some goes to land (rents), some goes to the government (taxes), some goes to debt holders (interest), and some goes to equity holders (profits), and the sum of all of these has to equal the total revenues.
The past ~20 years has seen marked declines in the share of income that goes to labor (real wages), the share going to the government (taxes), and the share going to debt holders (interest), with rents remaining roughly constant nationwide (but skyrocketing in certain municipalities like the Bay Area) and the balance of the gains largely going to profits. It looks like the macro environment has changed within the last year so that labor has more bargaining power, the government is ceasing several stimulus payments and may be raising taxes, and interest rates are going way up. Those will all increase the share of national income going to labor, government, and debt holders significantly, and so the balance has to come from landlords or equities. There's currently a tug-of-war going on for who's going to be the bagholder, will it be real estate or stock owners, and that hasn't fully played out. But if current trends continue it's going to be one of them, and yet this hasn't been priced into the price of those assets.
Ironically, all of the forces behind this are wildly politically popular, which is perhaps why they're starting to get traction. People want to get paid more, and see their fellow workers get paid more. People want the government to collect more taxes from corporations and rich people. People want their savings account to earn more. They just haven't made the connection that the other side of the trade is their 401(k) and brokerage account.