Market Is Punishing Negative EPS Surprises More Than Average for Q2

To date, 66% of the companies in the S&P 500 have reported earnings for the second quarter. Of these companies, 82% 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 82% is the final number for the quarter, it will mark the largest percentage of S&P 500 companies reporting a positive EPS surprise for a quarter since Q3 2021 (also 82%). In aggregate, earnings have exceeded estimates by 8.0%, which is below the 5-year average of 9.1% but above the 10-year average of 6.9%. Given this strong performance relative to recent averages, how has the market responded to EPS surprises reported by S&P 500 companies during the Q2 earnings season?

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

Companies that have reported positive earnings surprises for Q2 2025 have seen an average price increase of 0.9% two days before the earnings release through two days after the earnings release. This percentage increase is slightly below 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 second quarter much more than average.

Companies that have reported negative earnings surprises for Q2 2025 have seen an average price decrease of 5.6% two days before the earnings release through two days after the earnings release. This percentage decrease is much larger than the 5-year average price decrease of 2.4% during this same window for companies reporting negative earnings surprises.

One example of a company that reported a negative EPS surprise for Q2 and witnessed a substantial decrease in stock price is Intel. On July 24, the company reported actual (non-GAAP) EPS of -$0.10 for Q2, which was below the mean (non-GAAP) EPS estimate of $0.01. From July 22 to July 28, the stock price for Intel decreased by 11.0% (to $20.68 from $23.24).

What is driving the market’s above-average negative reaction to negative EPS surprises for Q2? It is likely not due to the earnings outlooks for Q3 from analysts and companies to date.

In terms of revisions to EPS estimates for S&P 500 companies, analysts actually increased EPS estimates slightly for Q3 2025 during the month of July. The Q3 bottom-up EPS estimate (which is an aggregation of the median EPS estimates for Q3 for all the companies in the index) increased by 0.1% (to $67.40 from $67.32) from June 30 to July 31. In a typical quarter, analysts usually reduce earnings estimates during the first month of a quarter. For more details, please pages 3 to 5.

In terms of EPS guidance, the percentage of S&P 500 companies issuing negative EPS guidance for Q3 is also below average. At this point in time, 57 companies in the index have issued EPS guidance for Q3 2025. Of these 57 companies, 30 have issued negative EPS guidance and 27 have issued positive EPS guidance. The percentage of companies issuing negative EPS guidance for Q3 2024 is 53% (30 out of 57), which is below the 5-year average of 57% and below the 10-year average of 61%. 

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