Buckle Up, Investors: Earnings Season Could Be a Bumpy Ride

Get ready for earnings season, folks, because things could get interesting. A new report by New Constructs suggests Wall Street analysts might be a tad too optimistic about how much dough S&P 500 companies raked in during Q2 2024.

Here’s the gist: the report claims that for a whopping 75% of S&P 500 companies, analyst estimates (what they predict the companies will earn per share) are higher than a more conservative measure New Constructs calls “Core EPS.” This Core EPS takes into account things like one-time events that might inflate a company’s earnings but aren’t likely to be repeated.

Think of it like this: imagine a company sells a bunch of old office furniture for a big chunk of change. That might make their earnings for one quarter look great, but it’s not exactly sustainable business. Core EPS tries to smooth out those one-time bumps to give a clearer picture of a company’s actual earning power.

Now, this wouldn’t be the first time Wall Street got a little carried away with their earnings forecasts. But what’s particularly interesting here is the number of companies where the gap between analyst estimates and Core EPS is pretty wide – we’re talking more than a 10% difference for over 40% of the S&P 500. That’s a significant chunk of the market.

So, what does this mean for us regular folks trying to navigate the stock market? Well, it basically says that there’s a decent chance of some companies falling short of expectations when they start reporting their earnings. That could lead to some stock prices taking a tumble.

Who’s Most Likely to Miss?

Unfortunately, the New Constructs report doesn’t name names. But, if you’re worried about your portfolio, it might be a good idea to do some digging into the companies you hold and see how their analyst estimates stack up against more conservative earnings metrics.

This report is a good reminder that not all earnings reports are created equal. By keeping a critical eye on analyst estimates and doing your own research, you can be better prepared to weather the ups and downs of earnings season.

Remember, this is just one report, and the market is a complex beast. But hey, a little information goes a long way, right?

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