Sign up for our daily briefing

Make your busy days simpler with Axios AM/PM. Catch up on what's new and why it matters in just 5 minutes.

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Catch up on the day's biggest business stories

Subscribe to Axios Closer for insights into the day’s business news and trends and why they matter

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Stay on top of the latest market trends

Subscribe to Axios Markets for the latest market trends and economic insights. Sign up for free.

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Sports news worthy of your time

Binge on the stats and stories that drive the sports world with Axios Sports. Sign up for free.

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Tech news worthy of your time

Get our smart take on technology from the Valley and D.C. with Axios Login. Sign up for free.

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Get the inside stories

Get an insider's guide to the new White House with Axios Sneak Peek. Sign up for free.

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Catch up on coronavirus stories and special reports, curated by Mike Allen everyday

Catch up on coronavirus stories and special reports, curated by Mike Allen everyday

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Want a daily digest of the top Denver news?

Get a daily digest of the most important stories affecting your hometown with Axios Denver

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Want a daily digest of the top Des Moines news?

Get a daily digest of the most important stories affecting your hometown with Axios Des Moines

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Want a daily digest of the top Twin Cities news?

Get a daily digest of the most important stories affecting your hometown with Axios Twin Cities

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Want a daily digest of the top Tampa Bay news?

Get a daily digest of the most important stories affecting your hometown with Axios Tampa Bay

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Want a daily digest of the top Charlotte news?

Get a daily digest of the most important stories affecting your hometown with Axios Charlotte

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!
Expand chart
Data: Bianco Research; Chart: Lazaro Gamio/Axios

Did you know I take requests? Lobbyist Bruce Mehlman writes in to ask: "If more than 70% of firms regularly beat Wall Street quarterly earnings expectations, doesn't that suggest the experts setting expectations are not so good at their jobs?"

It's a good question. In the second quarter of this year, the earnings-beat ratio actually reached 81%.

James Bianco, of Bianco Research, has two answers for Bruce.

Reg FD is the easy answer. Before 2000, companies would whisper earnings forecasts into the ears of favored analysts, who would then be rewarded for their accuracy. The SEC made such behavior illegal in 2000, saying that all earnings guidance has to be given to everybody in the market simultaneously. At that point, corporate incentives changed.

  • Companies receive a predictable spike in press attention when their earnings are released, and those stories nearly always mention the stock-market reaction. The easy way to engineer a short-term stock rise is to lowball your official earnings guidance. It doesn't help the stock price in the long term, but it does improve your PR.
  • That game might finally be coming to an end. In the third quarter of this year, the stocks of companies that beat earnings expectations actually fell by 1.5%.

If you want a non-engineered forecast, look at revenues, not earnings. Revenue beats are about as common as revenue misses, mainly because companies rarely game their revenue estimates.

The bottom line: The "experts" setting expectations are, ultimately, the companies themselves, rather than the sell-side analysts. Because earnings can be gamed, there's little point in analysts trying to second-guess them. Insofar as analysts add value, it's from long-term structural insights rather than short-term trading opportunities.

Go deeper:

Go deeper

Bryan Walsh, author of Future
50 mins ago - Politics & Policy

The global future is looking dark and stormy

Illustration: Rae Cook/Axios

A new 20-year-forecast for the world: increasingly fragmented and turbulent.

The big picture: A major report put out this week by the National Intelligence Council reflects a present rocked by the COVID-19 pandemic. How the next two decades will unfold depends largely on whether new technologies will ultimately unite us — or continue to divide us.

10 hours ago - Politics & Policy

Rep. Gaetz declares he's "not going anywhere" amid sex trafficking probe

Rep. Matt Gaetz. Photo: Eva Marie Uzcategui/Bloomberg via Getty Images

Rep. Matt Gaetz (R-Fla.) doubled down Friday night, saying he's not "going anywhere," and vowing, "I have not yet begun to fight," amid a federal investigation into sex trafficking allegations.

What he's saying: “I’m built for the battle, and I’m not going anywhere,” Gaetz, who denies the allegations, said during a Women for America First event at the Trump National Doral Miami resort.