The third quarter corporate earnings season is well underway. It’s very important because it is the last earnings report of the year and will set the tone for the last three months of 2024. In the chart below you can see how earnings expectations for 3Q have been adjusted down to accommodate a tough report season. This effect is well known and it creates the illusion that the majority of companies beat estimates when in reality, CFOs manage expectations with analysts through the year to “paint the tape” and look rosier than they should if there were no adjustments. Paired with that are buybacks, that reduce the share count and make earnings per share look higher. And then we have accounting alchemy, where companies use “adjustments” that may or may not be GAAP compliant but are used to make earnings juicier than they are. Thanks to all those measures, the likelihood of a good earnings season to close the year is high in a very demanding market that trades at all time highs. With 12 weeks to end the year, the S&P500 is up 22.6%.
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