This Week’s Briefing
Q2 earnings season is nearly wrapped, with 80% of U.S. companies reporting so far. Revenue growth for the quarter came in at 6.0%, and 82% of companies beat their earnings-per-share (EPS) estimates — well above the 5-year average of 78% and the 10-year average of 75%.
And yet… the S&P 500 remains below its July 21 all-time high. If the numbers are that good, why isn’t the market celebrating?
The answer lies in expectations.
During earnings season, companies issue forward guidance, which analysts use to adjust forecasts for upcoming quarters. The market then reacts not just to the actual results, but to how those results compare to — and reshape — expectations.
Heading into this earnings season, FactSet reports that analysts had already lowered EPS estimates by a larger margin than the past three averages. Positive results don’t erase the impact of those earlier cuts.
Some perspective:
Q3 guidance: Of 57 companies providing outlooks, 53% project results below analyst expectations — actually better than the 5-year average of 57% issuing downbeat guidance.
Market focus: Share prices are driven more by what’s coming than by what just happened.
Macro backdrop: Trade uncertainty is weighing on sentiment. U.S. trade deals remain unresolved, and a fresh round of tariffs took effect on August 7.
With uncertainty this high, markets are skeptical — even in the face of strong headline numbers.
Takeaway
Strong earnings can lift a stock… but only if the future looks just as bright. Right now, investors seem to think Q2’s “good news” may be as good as it gets.
— Lauren
Editor, American Ledger