Key points
- Beats often drive 2-5% stock rallies; misses drive 2-5% declines in the day.
- Forward guidance changes (management expectations) matter as much as actual numbers.
- Surprise magnitude and breadth across sectors drive market breadth.
Example
If S&P earnings expected $230 but report $225 (misses by 2%), stocks may drop 2-3%; if guidance also lowered, additional 1-2% drop.
In history
In 2022 most S&P 500 companies still beat their (lowered) estimates, yet shares fell about 19% over the year because rising interest rates pulled valuations down. Beating forecasts is not enough when the discount rate is rising.
Related terms