- The average surprise or beat rate is 16%, much higher than the normal 3%-5%.
- Thus far, there have been 30 companies that have beaten their Wall Street estimates versus 8 that have missed.
- This 80% beat rate compares favorably to the 62% beat rate from last quarter.
The most important earnings surprises have come in the Consumer Discretionary sector, where 7 companies have reported positive surprises versus 0 negative surprises. Importantly, in the Finance sector, there have been 7 positive surprises compared with 4 negative surprises. The Health-care sector has registered 4 earnings beats and no earnings misses.
Only about 10% of the companies have reported in this earnings season, so early success does not assure the whole season will continue at this rate. However, we do believe there is a good argument that can be made that earnings for the whole season will now come in much better than expected, as our portfolio managers had predicted.
There is no question that these better-than-expected earnings have driven stock prices higher this week. We believe the earnings surprises will continue, although we think it will get progressively tougher to impress the market. This could lead to a flattening of the markets for a few weeks, as investors digest the new data.
Another key element in this quarter's earnings is how they stack up with last years earnings. The analysts were predicting that earnings this quarter would be approximately 30% lower than a year ago. For stock markets to continue their recent upward climb, we believe the total earnings for the quarter need to finish down closer to 20%.
We give you another report the end of next week.