About 20% of companies in the S&P 500 index have released earnings for the first-quarter reporting season. Of these, fully 80% topped Wall Street’s forecasts, according to Howard Silverblatt, senior index analyst at S&P.
That compares with a beat rate of 67%, on average, over the past five years–and just 49% at this point during the fourth-quarter reporting season.
Notable companies reporting upside surprises Thursday included Bank of America (BAC), Microsoft (MSFT) and Philip Morris International (PM). On Wednesday, the list included eBay (EBAY), Abbott Laboratories (ABT) and American Express (AXP).
The percentage of upside surprises, although high by historical standards, doesn’t necessarily suggest the U.S. economy has entered a new phase of faster growth.
Rather, the major difference with the fourth quarter is that estimates for the first quarter “declined enough for the actuals to be able to beat the estimates,” wrote Mr. Silverblatt in a Thursday email.
Earnings reports have been strong for all sectors so far, but they are particularly strong for healthcare, where 22% of companies have reported, and 92% of these have beaten estimates, with none falling short of them. Bristol-Myers Squibb (BMY) reports April 26; Merck (MRK) April 27; and Pfizer (PFE) May 1.
Earnings growth may play a large part in determining whether share prices move broadly higher from here. The S&P 500 recently traded at 13 times projected 2012 operating earnings, on par with its historic average but lower than its average valuation of the past two decades. Earnings going into the first quarter reporting season were expected to rise just 5% year-over-year, versus 16% growth in the first quarter of 2011.
If the current pace of upside earnings surprises holds, earnings growth for the index could exceed expectations and give the market a lift. But only if investors are convinced companies are truly doing well–not just lowering expectations to beatable levels.