First Quarter S&P 500 Earnings Surprising On The Upside


Companies report their earnings at different times, which means that there are four quarterly “earnings seasons“, a period of 6-8 weeks after the beginning of every quarter when companies make their prior quarter earnings results public. Analysts track the results of various companies on an ongoing basis as they are reported throughout the earnings season, in order to assess the overall direction of the markets as a whole.

Research firm FactSet tracks the earnings reports of S&P 500 firms. In a report published on May 8th, FactSet Senior Earnings analyst John Butters notes that the combined actual results for companies that have reported and estimated results for companies yet to report reflects that earnings growth for the S&P 500 was up to 0.1% last week. This is well above the year-over-year decline of 0.4% the prior week and the estimated year-over-year decrease of 4.7% at the end of the first quarter (3/31).

Of note, this week was the first time since January that first quarter earnings reflected a year-over-year increase.

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Details on S&P 500 Q1 upside earnings surprise

The robust 4.8% improvement in the earnings growth rate since the end of the quarter easily trumps the five-year average improvement in growth of 3.1%.

So far in the first quarter, 71% of companies reported earnings above estimates slightly below the five-year average of 73%. That means the percentage of companies reporting earnings above estimates is not the primary reason for the above average increase in the earnings growth rate, as 71% is below the five-year average.

On the other hand, the 6.4% clip at which companies are reporting earnings above estimates for the first quarter is well above the five-year average  of 5.4%. Butters notes that  if 6.4% is the final surprise percentage for the quarter, this will actually be the highest surprise percentage since the first quarter 2011 (7.0%). Thus, the above average surprise percentage for the first quarter is the primary impetus for the above average increase in the earnings growth rate since March 31st.

S&P 500 sector breakdown

S&P 500

Also of interest,  the sectors reporting the biggest surprise percentages among all sectors to date have also recorded the highest increases in their earnings growth rates since March 31st.

The energy sector has seen the biggest surprise percentage so far at 28.7%. Since the end of the quarter, the Energy sector has also enjoyed the third greatest improvement in earnings growth at 7.9% (-56.6% from -64.5%).

The health care sector has experienced the second largest surprise percentage to date at 10.5%. Since March 31, the Health Care sector has also witnessed the highest improvement in earnings growth at 10.8 percentage points (to 22.3% from 11.5%).

The materials sector has seen the third largest surprise percentage so far in the quarter at 7.5%. The materials sector has also wit the fourth highest improvement in earnings growth at 4.9% (-1.2% from -6.1%).