We're now well into third quarter earnings season, and 65% of S&P 500 companies have come in better than expected. Interestingly, the two prior earnings seasons have seen nearly the exact same beat rates. Leading up to earnings season, estimates came down quite a bit, so many were expecting an even higher beat rate than the 65% we're seeing at the moment.
As shown in the table of quarterly beat rates below, the bear market that started in 2000 saw beat rates decline from 71% down to the low 50s by the fourth quarter of that year. Throughout this bull market, beat rates have been between 60% and 73%.
Below we highlight the change in third quarter year over year earnings growth expectations over the past two weeks. Financials have by far had the biggest decline in growth expectations, falling from -8.9% on 10/4 to -16.7% on 10/19. Energy, Telecom and Consumer Discretionary are the other three sectors whose growth forecasts have declined. Because Financials make up such a large part of the S&P 500 (around 20%), the sector has brought expectations down for the index as a whole from 0.7% to -0.6%. Not all is negative though. Materials, Utilities, Industrials, Health Care, Consumer Staples and Tech have all seen third quarter growth expectations increase.
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