The first-quarter earnings season is nearly over, and overall, it’s been a decent one.
According to a FactSet report, “To date, more than 90% of the companies in the S&P 500 have reported earnings for the first quarter. Of these companies, 76% have reported actual EPS above the mean EPS estimate, which is above the five-year average of 72%. In aggregate, earnings have exceeded expectations by 5.4%, which is also above the five-year average of 4.8%.”
A higher percentage of US companies beating earnings in the first quarter is mainly the result of analysts’ pessimism. At the end of 2018 and toward the beginning of 2019, most analysts and fund managers were bearish on the markets and corporate earnings. Apple’s (AAPL) cutting of its guidance at the beginning of 2019 also provided fodder for the bears. However, as economic data started pouring in, slowdown concerns abated. The US economy grew 3.2% in the first quarter, shattering estimates. Amazon (AMZN) and General Electric (GE) were among the companies that beat analysts’ estimates.
With expectations set low for earnings and the economy growing more than expected, it’s no surprise that more companies beat estimates in the first quarter compared to the five-year average. Meanwhile, US equity markets have come under pressure this month, and the SPDR S&P 500 ETF (SPY) is down 2.8% in May. However, it’s still up 14.9% for the year. As the earnings season wraps up, economic data, geopolitical issues, and US-China trade war concerns could drive the markets now.