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Stellar Earnings Are Silencing Market Noise…But Will They Last?


CFA, Chief Investment Strategist

“Ain’t nothin’ gonna break my stride
Nobody gonna slow me down, oh no
I got to keep on movin’” 

— Break My Stride, song lyrics by Matthew Wilder, 1983

Throughout summer investors have been inoculated against various potentially infectious market diseases — the Delta variant surge, China’s regulatory crackdown across a number of domestic industries, D.C. dysfunction, Federal Reserve taper talk, the US withdrawal from Afghanistan, global weather disasters, plummeting consumer confidence and an economic growth scare. Perhaps investors have already received their booster shots, fueling their feelings of invincibility against plausible market risks. Despite all the possible doom and gloom scenarios, markets are at all-time highs1 and valuations remain above their long-term averages.2  So, what is the engine that keeps stocks climbing that proverbial wall of worry to reach new heights? Simply, it’s outstanding corporate earnings results.

Come on Feel the Noise

Investors have quieted one noisy distraction after another this summer and that hairy list of risks hasn’t moved markets because revenues, earnings growth and profit margins have been phenomenal. And, it hasn’t been just the latest quarter (Q2’21) — it’s been the past five quarters dating back to last year (Q2’20). According to FactSet, S&P 500 companies on average over the past five quarters (Q2’20–Q2’21) are reporting earnings that are 19.3% above analysts’ expectations — an earnings surprise percentage notably above the 5-year average of 7.8%. 

If, as most analysts expect, the second quarter represents the post-pandemic peak in revenue, earnings and profit margin growth rates, at least the quarter will have gone out with a bang! According to FactSet, as of August 13, 87% of S&P 500 companies reported both revenue and earnings surprises for the second quarter. This marks the highest percentage of S&P 500 companies reporting revenues above estimates (87%) and the highest revenue surprise percentage (4.9%) for a quarter since FactSet began tracking these metrics in 2008. Amazingly, companies were able to beat revenue expectations despite the fact that analysts kept raising the bar. For example, on March 31, the estimated revenue growth rate for the S&P 500 for Q2’21 was 16.6%. By June 30, it was 19.4%. Today, the year-over-year revenue growth rate for the second quarter of 24.9% marks the highest reported figure by the S&P 500 Index since FactSet began tracking this metric in 2008.

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1 FactSet, Period: 01/03/1928–07/31/2021. S&P 500 used to represent the overall market.
2 FactSet, Period: 09/29/2006–07/31/2021. S&P 500 used to represent the overall market.


Earnings per share (EPS): A figure describing a public company’s profit per outstanding share of stock, calculated on a quarterly or annual basis.

S&P 500 Index: A stock market index tracking the performance of 500 large companies listed on stock exchanges in the United States. It is one of the most commonly followed equity indices.

Originally Posted on August 30, 2021 – Stellar Earnings Are Silencing Market Noise…But Will They Last?


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