Market Is Rewarding Positive EPS Surprises More Than Average for Q1

To date, 90% of the companies in the S&P 500 have reported earnings for the first quarter. Of these companies, 78% have reported actual EPS above the mean EPS estimate, which is above the 5-year average of 77% and above the 10-year average of 75%. In aggregate, earnings have exceeded estimates by 8.5%, which is below the 5-year average of 8.8% 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 Q1 earnings season?

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

Companies that have reported positive earnings surprises for Q1 2025 have seen an average price increase of 1.9% two days before the earnings release through two days after the earnings release. This percentage increase is larger than the 5-year average price increase of 1.0% during this same window for companies reporting positive earnings surprises.

If 1.9% is the final percentage for the quarter, it will mark the largest average price increase for S&P 500 companies reporting positive EPS surprises for a quarter since Q3 2022 (+2.4%).

One example of a company that reported a positive EPS surprise for Q1 and witnessed a significant increase in stock price is Microsoft. On April 30, the company reported actual (GAAP) EPS of $3.46 for Q1, which was above the mean (GAAP) EPS estimate of $3.22. From April 28 to May 2, the stock price for Microsoft increased by 11.3% (to $435.28 from $391.16).

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

Companies that have reported negative earnings surprises for Q1 2025 have seen an average price decrease of 1.7% two days before the earnings release through two days after the earnings release. This percentage decrease is smaller than the 5-year average price decrease of 2.3% during this same window for companies reporting negative earnings surprises.

One example of a company that reported a negative EPS surprise for Q1 and witnessed an increase in stock price is Caterpillar. On April 30, the company reported actual (non-GAAP) EPS of $4.25 for Q1, which was below the mean (non-GAAP) EPS estimate of $4.35. From April 28 to May 2, the stock price for Caterpillar increased by 5.4% (to $323.68 from $307.06).

What is driving the market’s more positive (and less negative) reactions to EPS surprises for Q1?

It may be due to positive EPS guidance issued by S&P 500 companies to date for the second quarter. In terms of EPS guidance, the percentage of S&P 500 companies issuing positive EPS guidance for Q2 is above average. At this point in time, 75 companies in the index have issued EPS guidance for Q2 2025. Of these 75 companies, 41 have issued negative EPS guidance and 34 have issued positive EPS guidance. The percentage of companies issuing positive EPS guidance for Q2 2025 is 45% (34 out of 75), which is above the 5-year average of 43% and above the 10-year average of 38%.

However, it should be noted that while EPS guidance for Q2 2025 has been more positive than average, analysts made larger cuts than average to Q2 EPS estimates for S&P 500 companies during the first month of the quarter. Please see "Analysts Making Larger Cuts Than Average to EPS Estimates for S&P 500 Companies for Q2" for more details.

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