Companies usually handily outperform when they beat estimates, but they have barely been rewarded at all for doing so in the current quarter. Photograph: Justin Lane/EPAUS earnings season is nearly over, and it’s been a good one. Some 80 per cent of companies have beaten analyst estimates. That’s comfortably better than the 10-year average of 73 per cent, notes FactSet. Reported earnings are 6.
Importantly, profit margins have steadied and remain at historically high levels – not what many would have expected to see in a slowing economy dogged by high inflation. Still, it’s not all good. The earnings beat rate is high because analysts “clearly went too far” when slashing estimates earlier this year, notes DataTrek Research. Nevertheless, earnings are still falling on a year-on-year basis.
Secondly, the rally prior to earnings season means good news was priced in. Data from FactSet and Credit Suisse shows companies usually handily outperform when they beat estimates, but they have barely been rewarded at all for doing so in the current quarter. Similarly, Europe’s stock market rally has stalled, even though over 70 per cent of companies have beaten estimates.