Market Is Punishing Negative EPS Surprises Less Than Average for S&P 500 Companies for Q3

To date, 91% of the companies in the S&P 500 have reported earnings for the third quarter. Of these companies, 84% have reported actual EPS above the mean EPS estimate, which is above the 5-year average of 78% and above the 10-year average of 77%. In aggregate, companies are reporting earnings that are 3.1% above estimates, which is below the 5-year average of 7.5% and below the 10-year average of 8.0%. If 3.1% is the actual number for the quarter, it will mark the lowest surprise percentage reported by the index since Q4 2022 (1.3%). Please see pages 7 to 8 of the Earnings Insight report for more details.

Given this mixed performance relative to recent averages, how has the market responded to EPS surprises reported by S&P 500 companies during the Q3 earnings season?

To date, the market is rewarding positive earnings surprises reported by S&P 500 companies for the third quarter more than average.

Companies that have reported positive earnings surprises for Q3 2026 have seen an average price increase of 1.1% two days before the earnings release through two days after the earnings release. This percentage increase is above the 5-year average price increase of 0.9% during this same window for companies reporting positive earnings surprises.

On the other hand, the market is punishing negative earnings surprises reported by S&P 500 companies for the third quarter less than average.

Companies that have reported negative earnings surprises for Q3 2026 have seen an average price decrease of 1.1% two days before the earnings release through two days after the earnings. This percentage decrease is much smaller than the 5-year average price decrease of 3.1% during this same window for companies reporting negative earnings surprises.

What is driving the market’s more positive and less negative reactions to EPS surprises for Q3? It may be due to positive revisions to EPS estimates for Q4 by analysts and positive EPS guidance for Q4 issued by companies to date.

In terms of revisions to EPS estimates for S&P 500 companies, analysts have increased EPS estimates for Q4 2026 to date. The Q4 bottom-up EPS estimate (which is an aggregation of the median EPS estimates for Q4 for all the companies in the index) has increased by 1.1% (to $94.49 from $93.49) since September 30. In a typical quarter, analysts usually reduce earnings estimates during the quarter.

In terms of EPS guidance, the percentage of S&P 500 companies issuing positive EPS guidance for Q4 is above average. At this point in time, 78 companies in the index have issued EPS guidance for Q4 2026. Of these 78 companies, 45 have issued positive EPS guidance and 33 have issued negative EPS guidance. The percentage of companies issuing positive EPS guidance for Q4 2026 is 58% (45 out of 78), which is above the 5-year average of 40% and above the 10-year average of 41%.

It is interesting to note that the market has punished EPS surprises reported by the “Magnificent 7” companies for Q3 more than the entire S&P 500.

The three “Magnificent 7” companies that reported positive EPS surprises for Q3 2026 (Apple, Microsoft, and Tesla) saw an average price decrease of 0.2% two days before the earnings release through two days after the earnings release. This compares to an average price increase of 1.1% for all S&P 500 companies reporting positive EPS surprises for Q3.

The three “Magnificent 7” companies that reported negative EPS surprises for Q3 2026 (Alphabet, Amazon.com, and Meta Platforms) saw an average price decrease of 7.8% two days before the earnings release through two days after the earnings release. This compares to an average price decrease of 1.1% for all S&P 500 companies reporting negative EPS surprises for Q3.

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