Wall Street Barely Noticed the Best Earnings in Years

Corporate America just finished the strongest earnings seasons we’ve seen in five years.

With 97% of the companies in the S&P 500 reporting, 86% beat Wall Street’s earnings estimates, according to market research firm FactSet. That is well above the five-year average of 78% and the 10-year average of 76%.

If that number holds, this will be the highest percentage of companies beating estimates since the second quarter of 2021.

That’s remarkable when you consider what these companies have been dealing with: a war in the Middle East, higher oil prices, stubborn inflation, and interest rates that remain high enough to slow the economy.

Through all of it, American businesses kept delivering.

Now, I want to be cautious here because the two biggest numbers from this earnings season can give you the wrong impression if you take them at face value.

FactSet reported that S&P 500 companies beat earnings estimates by 26.5% in aggregate, while earnings grew 52% from a year earlier.

A large part of those gains came from unusual investment windfalls at Alphabet and Amazon. Remove those two companies, and the earnings surprise falls to 10.8%, while earnings growth falls to 33.8%.

Strip out those unusual gains, and the underlying picture is still exceptionally strong.

The average earnings surprise over the past five years was just 7%. And the strength extended across the market. Ten of the S&P 500’s 11 sectors reported earnings growth (only healthcare reported a decline). Nine produced double-digit growth.

So this earnings season wasn’t simply an accounting illusion created by two technology giants. Corporate America really is performing better than Wall Street expected.

And as you’re about to see, stock prices haven’t fully reflected that strength. That disconnect is opening what I call a Control Window.

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