The beats aren’t real!
Shouted anybody and everybody, with 65% or so of the S&P on the books with Q2 results.
Going by the ubiquity of the “fake” EPS beat narrative this month, you’d think no one’s ever seen this charade before. In fact, this is always a charade. How could it not be? “Consensus” is comprised of people (company analysts) who take their cues directly from other people (the C-suite) who have a literal vested interest in setting a low bar.
It’s not all that simple, of course. There’s an art to this. You can’t set the bar too low, because guide-downs and estimate cuts are bearish for the stock price, which is the very thing you’re trying to inflate. The trick is to set the bar low enough to clear, but not so low that it spooks investors before next quarter’s report.
Q2 2025 was unique in kicking off with an event — “Liberation Day” — which prompted sharp estimate cuts. The figure on the right, below, shows you the trajectory, both for current- and out-year consensus.
“While earnings revisions have recently improved, bottom-up consensus estimates for 2025 and 2026 earnings remain below levels prior to the April 2 tariff announcements,” Goldman’s David Kostin remarked, in his latest, adding that estimates for both years remain 3% lower versus the beginning of the year.
So, the aggregate bar’s still low, even as the operating environment’s arguably friendlier — or at least a little less uncertain — than it was in early April. That’s a favorable setup for beats. Or “beats” in scare quotes.
Commenting on the 63% of companies that’ve beat by a standard deviation or more this reporting season (figure on the left, above), Kostin noted that the beat frequency’s among the highest in a quarter century.
“However,” he cautioned, “the frequency of positive ‘surprises’ largely reflects the unrealistically low bar created by estimates coming into the quarter,” which helps explain why the reward for beating (i.e., outperformance versus the benchmark the day after results) is a mere 55bps, half the historical bump.
Thank you, sir. Now we’ll be treated to a parade of analysts crowing about “solid” earnings growth. (Now including Mike Wilson.)
Because earnings matter…..
Any truth to the rumor S&P 500 companies have been ordered by Agent Orange to fire any IR heads releasing earnings reports that aren’t a “beat”?
The “acting” president is in a bit of a pickle. Act 1 bogeymen, the fake news and the big beautiful wall, were easy to bs about. Not so with Act 2 problems like jobs, GDP and corporate earnings – things with real numbers that have underpinned the economy for most of our history. Even his most loyal subjects will understand facts they can measure themselves like cost of groceries and healthcare. Fake everything isn’t going to cut it. He tried “waste, fraud and abuse” but that was cancelled after the first episode. Apparently the leading man was a dud.
The cult will never turn on dear leader. There’s always another scapegoat and anything he says is gospel truth (pretty sure the book of Donald will slot in right after Two Corinthians.
To quote George Costanza, “It’s not a lie if you believe it.”