21 March 2021
Source: Bloomberg & Momentum Global Investment Management
What this chart shows The chart shows the earnings surprise of companies within the S&P 500 on a quarterly basis. The ‘surprise’ is the amount per share in percentage terms that actual earnings differed from the average analyst’s expected earnings. A positive figure means that the average firm in the S&P 500 exceeded the predicted earnings, whereas a negative figure signifies that analysts had overestimated the earnings. It’s important to note that there may be cases where, though the surprise is positive, the actual growth rate for earnings may fall.
Why this chart is relevant
One can clearly see that, throughout the coronavirus pandemic from Q2 2020 to the present, analysts have underestimated company’s earnings by over 15% at each quarter. This demonstrates that, though earnings may have fallen on an absolute basis throughout this period, they have not fallen as much as analysts forecasted.
This indicates the resilient nature of many companies in the S&P 500, or the inaccuracy of forecasts. It is evident that analysts have been consistently bearish over the past few years, and this trend has been exacerbated by the pandemic. Earnings are a key driver of equity market performance and are an important indicator of the strength of the US financial markets, thus a large surprise to the upside can promote bullish behavior among investors and a sharp increase in a company’s stock price.
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