An update on earnings season

While first quarter earnings reports are still trickling in, the majority of companies have already released their numbers.  Below we provide a quarterly comparison of the percentage of companies in the S&P 500 that have beaten or missed earnings estimates.  So far in the quarter, 68% of the 401 companies that have reported have beaten average analyst estimates provided by Bloomberg.  On the opposite side of the equation, 22% of companies have missed estimates.

Compared to prior results, this quarter's numbers are slightly above average on both the "beat" and "miss" sides.  So why have the markets been so strong this earnings season?  Part of the reason is that expectations leading up to the release of first quarter results were low.  As shown in the charts, the "beat" rate in the prior quarter (Q4 '06) was just 61% while the "miss" rate was 26% -- both very poor numbers.  Investors surely remembered these negative results going into the first quarter reporting period, along with the end of the consecutive double-digit earnings growth streak.  Once investors realized that last quarter ended up being an outlier instead of the start of a new trend, they were quick to push the markets higher.