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S&P 500 Positive EPS Surprises Were Punished Pre-Election but Rewarded Post-Election

Earnings

By John Butters  |  November 13, 2020

To date, 84% of S&P 500 companies have reported a positive EPS surprise for Q3 2020. Overall, the market is rewarding these positive earnings surprises at average levels. Companies that have reported positive earnings surprises for Q3 2020 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 equal to the five-year average price increase of +0.9% during this same window for companies reporting positive earnings surprises.

S&P 500 Positive EPS Surprises Q3 Price Change vs 5 yr avg

However, there is a sharp difference in the price reactions for S&P 500 companies reporting positive EPS surprises before Election Day and after Election Day.

Prior to Election Day (Sep. 10 to Nov. 2), 86% of S&P 500 companies reported a positive EPS surprise. These companies saw an average price decrease of -0.6% 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%. Facebook is an example of a company that reported a positive EPS surprise of 42.8% ($2.71 vs. $1.90) before Election Day but witnessed a negative price reaction of -7.7% (to $261.36 from $283.29) over this four-day window.

Including and after Election Day (Nov. 3 to Nov. 12), 78% of S&P 500 companies reported a positive EPS surprise. These companies saw an average price increase of +5.7% two days before the earnings release through two days after the earnings release. This percentage increase is well above the five-year average price increase of +0.9%. General Motors is an example of a company that reported a positive EPS surprise of 97.8% ($2.83 vs. $1.43) after Election Day and witnessed a positive price reaction of +10.2% (to $38.96 from $35.35) over this four-day window.

S&P 500 Q3 Positive EPS Surprises Pre & Post Election Price Change

Although more S&P 500 companies beat EPS estimates (86% vs. 78%) prior to Election Day and beat EPS estimates by a wider median difference (+13.0% vs. +10.9%) prior to Election Day, the market punished positive EPS surprises before Election Day and rewarded positive EPS surprises more than average after Election Day. Thus, it appears the price movements for S&P 500 companies reporting positive EPS surprises were less related to earnings performance and more related to broader market themes such as the election (uncertainty before the election and more certainty after the election) and COVID-19 (rising cases before the election but news of potential vaccines after the election). 

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John Butters

Vice President, Senior Earnings Analyst, Investor Relations

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).

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