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S&P 500 Earnings: Beating Expectations or Beating the System?
- Alpesh Patel
- Jul 30
- 4 min read
The Wall Street Illusion
If investing is about truth, then earnings season is about theatre. Every quarter, investors huddle around screens like it’s the FA Cup Final. But instead of goals, we wait for companies to "beat expectations." It’s dramatic. Sometimes thrilling. But let me ask you this:
What if I told you most companies already plan to beat expectations?
Welcome to the Wall Street illusion. Two powerful charts; one from FactSet and another from Bloomberg Intelligence reveal how this expectations game plays out. They also show why savvy investors must think beyond headlines.
Let’s dissect the data and translate it into strategies for both your portfolio and career.
Chart 1: Earnings Growth Has Surpassed Expectations…
But What Does That Mean?
The first chart from FactSet (as of July 14, 2025) shows S&P 500 year-on-year earnings growth by quarter—comparing expected vs actual performance from 2022 through 2025.
Key Highlights:
2022 – The Year of Disappointment
Q1: Expected +5%, Actual +9% – a strong start
Q4: Expected -3%, Actual -5% – earnings contracted
2023 – Rebuilding Confidence
Q1: -2% actual vs -2% expected (perfect alignment)
Q4: Expected +7%, Actual +12% – earnings beat big
2024 – Back to Boom
Q2: Expected +9%, Actual +11%
Q4: Expected +13%, Actual +18%
2025 – Back to Earth
Flat expectations of 5%–7% growth forecast across quarters
Takeaway:The “beat” culture is alive and well. But growth rates are plateauing. It’s no longer about "surprising" analysts. It's about whether those surprises are meaningful.
Chart 2: The Bigger Picture - Positive Surprises Dominate
The second chart, from Bloomberg Intelligence, shows the proportion of S&P 500 companies that beat, met, or missed earnings expectations from Q3 2017 to Q2 2025.
Key Insights:
60%–75% of companies beat EPS estimates every quarter
10%–20% miss expectations
The remaining meet the forecast (hovering around 10%)
Even during the worst of COVID (Q2 2020), more than half the companies still beat estimates. That's no coincidence—it’s design.
Like a magician who controls the audience’s focus, companies and analysts engineer earnings expectations to be beatable.
The Psychology of Earnings "Beats"
Let me break this down in simple terms.
Imagine this: A CEO knows her company will likely earn $1.20 per share. She guides analysts to expect $1.00. Earnings day comes. They report $1.20. Headlines scream: “Earnings Beat!” The stock jumps 4%.
It’s legal. It’s expected. It’s baked into the system. This pattern isn’t about absolute performance - it’s about relative surprise.
Why This Matters to Investors Like You
Let’s turn this insight into action.
Lesson 1: The Bar Is Low - Be Skeptical of “Beats”
Since 2020, over 60% of companies have beaten earnings each quarter. That tells you one thing: expectations are engineered to be beaten.
Example: In Q4 2024, analysts expected 13% YoY earnings growth. Actual came in at 18%. Great, right? But if share prices had already risen in anticipation, the “beat” did nothing.
🎯 Strategy:
Focus on revision trends, not just final earnings.
If expectations are rising before earnings season, the market has already priced in a beat.
Instead of chasing a short-term pop, look for fundamental growth stories that are misunderstood or underpriced.
Lesson 2: Missing the Mark Is Punished
When 3 out of 4 companies beat estimates, the ones that don’t stand out—negatively.
Example: Amazon once missed EPS by $0.02. The result? A 6% drop in one day—even though sales rose 10%.
🎯 Strategy:
Avoid companies with high P/E ratios going into earnings unless you have high conviction.
Use stop-losses or options to hedge positions around earnings dates.
Lesson 3: Momentum Trumps Surprise
While the first chart shows beats, it also highlights a trend of deceleration from Q4 2024 (18%) to projected 6% in Q4 2025.
The market doesn’t just reward a beat—it rewards acceleration.
Example: A company growing 12% last quarter and 18% this quarter will excite markets, even if they only match expectations.
🎯 Strategy:
Look for accelerating earnings growth (check quarterly trends).
Tools like PEG ratio (Price/Earnings to Growth) help spot undervalued momentum plays.
Career Parallel: Beating Expectations in Your Job
This mindset doesn’t just apply to your portfolio—it applies to your career performance too.
In earnings terms, we’d call this career alpha.
Just like companies:
You can underpromise and overdeliver (but do it too often and the bar rises).
You can beat targets but still lose out if the trajectory flattens.
🎯 Career strategy tips:
Document your wins quarterly—quantify results (like EPS beats).
Communicate ahead of reviews—set clear “guidance.”
Don’t just perform—show momentum.
Because in your career, like the stock market, narrative is power.
Global Comparison: Why the S&P 500 Sets the Tone
The U.S. market is earnings-driven. Compared to Europe and Asia:
Region | Beat Culture | Quarterly Reporting | Volatility |
U.S. (S&P 500) | High | Mandatory | High |
UK (FTSE) | Moderate | Less focus | Moderate |
Asia (Nikkei, Nifty) | Low | Annual focus | Lower |
Tip for UK/India-based investors:Don’t just follow the S&P 500 blindly. Local markets often price earnings differently. A 5% miss in the US can cause a crash; in India, it may be shrugged off.
2025: What Lies Ahead?
Earnings growth is expected to moderate in 2025:
Quarter | Expected EPS Growth |
Q1 2025 | 5% |
Q2 2025 | 7% |
Q3 2025 | 7% |
Q4 2025 | 6% |
This is well below the 18% boom we saw in Q4 2024.
If the Fed keeps interest rates elevated and consumer spending tightens, we could see more earnings misses and market volatility.
Tools to Help You Track Earnings Trends
Tool | Use Case |
FactSet & Bloomberg | Professional-grade data |
Koyfin | Free visualisation tools |
Finviz | Screener for earnings trends |
Earnings Whispers | Track expected & reported EPS |
Learn how to invest like a pro |
Don’t Just Play the Game - Understand It
The “beat expectations” game is like cricket with a moving wicket and biased umpires. You can win—but only if you know how it’s rigged.
You need:
Context (What’s expected vs. real growth?)
Timing (Is the momentum real?)
Discipline (When to stay out and when to rotate)
Whether you’re investing for retirement, building a self-managed SIPP, or upskilling for a new role - always ask:
Am I buying a real opportunity or just a well-marketed surprise?
Sources:
Disclaimer
This article is for educational purposes only and does not constitute financial advice. Past performance is not indicative of future results. Investing involves risk, including loss of capital. Always do your own due diligence or speak with a licensed advisor.
Alpesh Patel OBE
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