Market Is Punishing Negative EPS Surprises More Than Average for Q1

To date, 89% of the companies in the S&P 500 have reported earnings for the first 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 75%. If 84% is the actual number for the quarter, it will mark the highest percentage of S&P 500 companies reporting a positive EPS surprise since Q2 2021 (87%). In aggregate, companies are reporting earnings that are 18.2% above estimates, which is also above the 5-year average of 7.3% and above the 10-year average of 7.1%. If 18.2% is the actual number for the quarter, it will mark the highest surprise percentage reported by the index since Q1 2021 (22.2%).

Given this strong performance relative to recent averages, how has the market responded to EPS surprises reported by S&P 500 companies during the Q1 earnings season?

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

Companies that have reported positive earnings surprises for Q1 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 slightly above the 5-year average price increase of 1.0% 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 first quarter much more than average.

Companies that have reported negative earnings surprises for Q1 2026 have seen an average price decrease of 4.9% two days before the earnings release through two days after the earnings. This percentage decrease is much larger than the 5-year average price decrease of 2.9% during this same window for companies reporting negative earnings surprises.

What is driving the market’s above-average negative reaction to negative EPS surprises for Q1? It is likely not due to the earnings outlook for Q2 from analysts and companies to date.

In terms of revisions to EPS estimates for S&P 500 companies, analysts have increased EPS estimates for Q2 2026 to date. The Q2 bottom-up EPS estimate (which is an aggregation of the median EPS estimates for Q2 for all the companies in the index) has increased by 3.2% (to $81.34 from $78.84) since March 31. 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 negative EPS guidance for Q2 is below average. At this point in time, 77 companies in the index have issued EPS guidance for Q2 2026. Of these 77 companies, 38 have issued negative EPS guidance and 39 have issued positive EPS guidance. The percentage of companies issuing negative EPS guidance for Q2 2026 is 49% (38 out of 77), which is below the 5-year average of 58% and below the 10-year average of 60%.

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