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S&P 500 Companies See Negative Price Reaction to Positive EPS Surprises in Q4


By John Butters  |  February 19, 2021

Overall, 83% of the companies in the S&P 500 have reported actual results for Q4 2020 to date. Of these companies, 79% have reported actual EPS above estimates, which is above the five-year average of 74%. If 79% is the final percentage for the quarter, it will mark the third-highest percentage of S&P 500 companies reporting a positive EPS surprise since FactSet began tracking this metric in 2008. In aggregate, companies are reporting earnings that are 14.6% above the estimates, which is also above the five-year average of 6.3%. If 14.6% is the final percentage for the quarter, it will mark the fourth-largest earnings surprise percentage reported by the index since FactSet began tracking this metric in 2008. Due to these positive EPS surprises, the index is now reporting year-over-year growth in earnings of 3.2% today compared to an estimated year-over-year decline in earnings of -9.3% back on December 31.

Given the unusually strong performance of actual earnings relative to analyst estimates and the improvement in the earnings growth rate over the past few weeks, how has the market responded to positive EPS surprises during the Q4 earnings season?

Companies that have reported positive earnings surprises for Q4 2020 have seen a decline in price of -0.1% on average two days before the earnings release through two days after the earnings release. This percentage decrease is well below the five-year average price increase of +0.9% during this same window for companies reporting positive earnings surprises.

S&P 500 Avg Price Change for Positive EPS Surprises

If the final percentage for the quarter is -0.1%, it will mark the first time the index has seen an average decrease in price (over this four-day window) for S&P 500 companies reporting positive EPS surprises since Q4 2019 (-0.2%).

S&P 500 Positive EPS Surprises Avg Price Change

Why is the market not rewarding companies (on average) that have reported positive earnings surprises? It is likely not due to EPS guidance or analyst revisions to EPS estimates for the first quarter. To date, 63% (53 of 84) of the companies that have issued EPS guidance for Q1 have issued positive guidance. This percentage is well above the five-year average of 33%. In aggregate, analysts increased EPS estimates for Q1 by 3.5% during the month of January. This was the highest percentage increase in EPS estimates over the first month of a quarter since Q1 2018.

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John Butters

Vice President, Senior Earnings Analyst

Mr. John Butters is Vice President and Senior Earnings Analyst at FactSet. His 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, The Financial Times, The New York Times, MarketWatch, and Yahoo! Finance. Mr. Butters has over 15 years of experience in the financial services industry. Prior to FactSet in January 2011, he worked for more than 10 years at Thomson Reuters (Thomson Financial), most recently as Director of U.S. Earnings Research (2007-2010).


The information contained in this article is not investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.