A 29.6% forecast for third-quarter S&P 500 earnings growth is already a demanding number. The index is nevertheless likely to report growth above 35% for Q3, based on the pattern of estimates rising as companies publish their results.
That outcome would make this the third consecutive quarter in which the index recorded year-over-year earnings growth above 25%.
The historical record offers support, though the scale of the usual beat has varied. Over the past ten years, actual earnings at S&P 500 companies have exceeded estimates by 8.0% on average. The comparable figures are 7.5% over five years and 13.8% over the past four quarters.
The pattern is also broad across the index. During the past ten years, 77% of S&P 500 companies reported actual earnings per share, or EPS, above the mean EPS estimate on average. That figure was 78% over five years and 82% over the past four quarters.
At the index level, actual earnings growth has exceeded the estimate in 37 of the past 40 quarters. The exceptions were Q1 2020, Q3 2022 and Q4 2022.
The starting point for the latest calculation was 29.2% at the end of Q3, on 30 September. From quarter-end to the end of earnings season, the earnings growth rate has risen by 6.9 percentage points on average over ten years, 6.4 percentage points over five years and 14.1 percentage points over the past four quarters.
Applied to the 29.2% estimate, those benchmarks produce three possible outcomes. The ten-year average implies 36.1%, the five-year average 35.6%, and the four-quarter average 43.3%.
The historical case for a beat is clear. The unresolved question is whether companies can meet the elevated expectation now embedded in the forecast, and how the market will respond if the results fall short.
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