When fund managers returned from their winter holiday beach and ski vacations for the New Year, they were greeted to a market in free-fall during the month of January.

The sell-off was fueled at least partly by investors' concerns about China slowing, the US grinding to a halt, and corporate profits falling.

That sell-off continued through mid-February before a surprisingly sharp bounce that sent markets positive for the quarter.

“It was a strange quarter,” hedge fund manager David Einhorn, the founder of Greenlight Capital, wrote in a letter to his investors dated May 2.

“The S&P 500 (^GSPC) spent the first half of the quarter going straight down. Then in the spirit of ‘never mind’, it turned on a dime, recovering all of the loss and then some,” he wrote.

Einhorn went on to warn that many companies are only beating earnings estimates because expectations have been lowered. For the most part, when companies post earnings that are higher than analysts’ estimates, the shares tend to trade higher. If the earnings results miss, the share price usually falls.

Many companies right now are simply beating a lowered bar.

“Continuing the game of lower and beat, most companies beat low-balled fourth quarter estimates and many further lowered targets for 2016," Einhorn said. "In 2015, the S&P 500 companies collectively earned $117, which was 6% less than expected at the beginning of the year.”

“Yet each quarter when companies reported, earnings were about 3% higher than expected, with roughly two-thirds of the companies exceeding estimates. Impressively, there were 32 companies in the S&P 500 that earned less last year than was expected at the beginning of the year, and reduced expectations for 2016, while somehow managing to report positive surprises every quarter in 2015.”

It's the same story over and over again.

“2016 looks to be more of the same. Since the beginning of the year, bottom-up consensus estimates for S&P 500 earnings have fallen from $126 to succeed at clearing a continually falling bar.”

Greenlight Capital finished the first quarter up 3%. Some of the fund’s biggest winners included long bets on Consol Energy, Michael Kors, and gold. The fund’s performance also benefitted from its so-called “bubble basket” that includes short bets in several tech companies.

The first quarter was a bright spot for the fund, which had not seen a profitable quarter in some time. The fund fell 20.2% in 2015. Einhorn’s only previous down year was in 2008, when the fund lost around 23%.

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Julia La Roche is finance reporter at Yahoo Finance.

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