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The year is 2025, and people are still writing this kind of thing:
The broad-based resilience in 2Q25 results (81% beats) should help dispel some of the concerns surrounding the US economy and support the rich market valuations. AI and Mag 7 led from the front, but strength was also visible in financials, suggesting a resilient macro.
The quote’s from Jefferies’ quantitative strategy desk, though it could be from any one of dozens of earnings season summaries clogging our inbox. Jefferies concludes that it’s been the best US quarter relative to expectations for yonks:
Great! But what happened to forecasts before earnings season?
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Right.
Everyone knows already how things work. SG Securities strategist Andrew Lapthorne calls it the “just-in-time” estimate, where . . .
. . . . individual analysts’ consensus estimates would suddenly drop one by one prior to a company’s quarter end, only for said company to ‘surprise’ a few weeks later. The result are US reporting seasons that almost always beat the consensus, and good company headlines and perhaps even a good share price reaction on the day.
The data supports his view. Using a (completely arbitrary) starting point of consensus forecasts 220 trading days before the end of the quarter, every US earnings season since Q2 2022 has cleared a lowered bar:
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This quarterly forecast kayfabe would be just about acceptable if the beats being delivered at results were bigger than the downgrades needed to achieve them. Unfortunately, the opposite is true:
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Everyone knows the game by now. The mystery is why brokers still believe it’s worth compiling these earnings season scorecards. As Jefferies writes:
Stock performance after the results has been lacklustre, with stocks barely outperforming even when they beat expectations. Misses were heavily penalised. However, beats resulted in substantial upgrades, the best in 2 years, while misses led to downgrades below the last few years norm.
Yeah, maybe the jig’s up.
Further reading:
— Dilbert: Beating Earnings Estimates (The Big Picture)
