US earnings season is nearly over, and it’s been a good one. Some 80 per cent of companies have beaten analyst estimates. That’s comfortably better than the 10-year average of 73 per cent, notes FactSet. Reported earnings are 6.9 per cent above analyst estimates – that’s much better than recent quarters and slightly above the 10-year average. About three in every four companies have topped revenue estimates, well above historical norms. The average revenue beat is also higher than normal.
Importantly, profit margins have steadied and remain at historically high levels – not what many would have expected to see in a slowing economy dogged by high inflation.
Still, it’s not all good. The earnings beat rate is high because analysts “clearly went too far” when slashing estimates earlier this year, notes DataTrek Research. Nevertheless, earnings are still falling on a year-on-year basis.
Secondly, the rally prior to earnings season means good news was priced in. Data from FactSet and Credit Suisse shows companies usually handily outperform when they beat estimates, but they have barely been rewarded at all for doing so in the current quarter. Similarly, Europe’s stock market rally has stalled, even though over 70 per cent of companies have beaten estimates.
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Thirdly, rising analyst estimates suggest S&P 500 earnings could hit record levels later this year. Many strategists wonder if estimates are now too high, given slowing global growth. Overall, says DataTrek, it’s been a “good, if not great” earnings quarter.
