Big companies are raising the bar for their earnings in Q2
A record number of S&P 500 companies have said their second-quarter earnings would be better than what analysts expect.
Why it matters: Companies provide guidance, or their projection for their financial performance, so that the market isn’t too surprised when they announce actual results.
- However, they risk disappointing investors and triggering a stock selloff if those actual results ultimately fall short.
By the numbers: A company’s guidance is considered positive if it is higher than the median analyst’s estimate for the metric.
- Of the S&P 500 companies, 103 offered Q2 earnings guidance, according to FactSet data.
- A record 66 of these companies provided positive guidance.
Flashback: In Q2 of 2020 during the early stages of the coronavirus pandemic, just 53 companies offered any kind of guidance due to lack of visibility as the economic lockdown was totally unprecedented.
What they’re saying: The fact that a record number of companies are issuing positive guidance confirms Wall Street continues to be too conservative about earnings prospects, DataTrek Research’s Nicholas Colas wrote in an email on Monday.
- Earnings have been driving the rally over the past year, and if expectations for positive outcomes are still going up, it seems to be reason enough for stocks to keep following suit.
What to watch: Companies will start announcing their actual results in two or three weeks.
- "Q2 2021 earnings season needs to show real upside to Wall Street expectations to keep the current US bull market on track, and the last 2 weeks’ ‘guidance season’ confirms that it should," Colas wrote.