To date, more than 90% of the companies in the S&P 500 have reported earnings for the first quarter. Of these companies, 75% have reported actual EPS above the mean EPS estimate. This percentage is above the trailing 5-year average of 68%. In aggregate, companies have reported earnings that exceeded expectations by 6.0%, which is well above the trailing five-year average of 4.1%. Because of these upside earnings surprises, the earnings growth rate for the S&P 500 has improved to 13.6% today from 9.0% on March 31.
Earning Suprise Reactions
Given the stronger performance of companies relative to analyst estimates and the improvement in the growth rate over the past few weeks, how has the market responded to upside and downside earnings surprises during the Q1 earnings season?
Based on the average change in the price of the stock two days before the company reported actual results through two days after the company reported actual results (four-day window), the market has rewarded upside earnings surprises slightly less than average and has punished downside earnings surprises more than average during the Q1 earnings season.
Companies in the S&P 500 that have reported upside earnings surprises for Q1 2017 have seen an average increase in price of 1.1% during this four-day window. Over the past five years, companies in the S&P 500 that have reported upside earnings surprises have witnessed a 1.3% increase in price on average during this window.
Companies in the index that have reported downside earnings surprises for Q1 2017 have seen an average decline in price of 3.1% during this four-day window. Over the past five years, companies in the index that have reported downside earnings surprises have recorded a 2.4% decrease in price on average during this window.
John’s weekly research report, Earnings Insight provides analysis and commentary on trends in corporate earnings data for the S&P 500, including revisions to estimates, year-over-year growth, performance relative to expectations, and valuations. He is a widely used source for the media and has appeared on CNBC, Fox Business News, and the Business News Network. In addition, he has been cited by numerous print and online publications such as The Wall Street Journal, Financial Times, The New York Times, MarketWatch, and Yahoo! Finance.