Chart of the Week: The Earnings Expectations vs. Reality Gap

Chart of the Week: The Earnings Expectations vs. Reality Gap

July 18, 2022

Wall Street analysts expect companies in the S&P 500 to report profits 4% higher than one year ago. If what’s past is prologue, we can expect two things: (1) That estimate is wrong and (2) it’s possibly too low.

Over the last four years, Wall Street analysts have made meteorologists look like soothsayers. On average, their predictions for earnings growth when companies start to report quarterly profits have missed the mark by about 9%. As baseball player Yogi Berra famously quipped, “It’s tough to make predictions, especially about the future.”

In addition to missing the mark, analysts have been too conservative. In 14 of the last 15 quarters, analysts’ estimates came in under companies’ actual results.

If the Street has set another low bar this quarter, then earnings growth that hurdles the consensus 4% estimate would be some much-needed positive news in a market that’s been dominated by negative headlines.

This chart shows analysts' expected earnings for S&P 500 companies vs. the actual reported results each quarter from 2018 through June 2022.
Note: Chart shows analysts’ expected year-over-year earnings growth for S&P 500 companies (as of the prior quarter-end) alongside actual reported earnings results from 9/30/2018 through 6/30/2022. Source: FactSet.

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