Earnings Season – Reward for Beating Has Fallen

Last year, we repeatedly noted the tendency for companies that beat earnings estimates to subsequently outperform the index, and those that miss tending to underperform. This observation especially held true during the Q3 earnings season, as the reward for companies that beat earnings expectations was higher during the Q3 earnings season than at any time during the prior three years.

The Q4 earnings season has been underway for a few weeks now. While it is still early, the market is rewarding companies that beat estimates to a much smaller degree (see Fig. 1). In particular, the market is no longer applying an historically large premium to companies that report earnings that beat expectations.

Fig. 1 – Reward for Companies Beating Earnings in Q4 Has ShrunkSource: S&P, FactSet, Bloomberg, Fundstrat analysis.Note: Shows the 3-day relative return for stocks beating (dark blue bars), in line with (gray bars) and missing (light blue bars) earnings estimates. An earnings beat (miss) is defined as the stock reporting earnings at least 2% greater (less) than consensus estimates. Period of analysis from December 16, 2019 through January 27, 2023. Performance is relative to the S&P 500. Transaction costs are not consider...

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