The second week of fourth-quarter reporting has remained broadly positive, but Bank of America says the cadence has slackened compared with the previous quarter and market reactions to earnings surprises are deteriorating further.
So far, 64 S&P 500 companies - representing roughly 18% of the index's earnings - have filed results. About 70% of those firms have beaten consensus earnings estimates, which is above the historical week-two average of 64% but well below the 79% beat rate recorded at the same point in the third quarter.
At the aggregate level, reported earnings have outpaced estimates by 7%, down from 8% at this stage of the prior quarter. Consensus estimates for fourth-quarter earnings growth remain on track at 7% year-on-year, unchanged from last week. Bank of America expects actual growth to come in closer to 11%, while noting risks are skewed to the upside.
Revenue performance is weaker relative to Q3. Approximately 67% of companies have beaten sales forecasts so far, a decline from 79% last quarter but still ahead of the historical week-two average of 60%. When financial companies are excluded, the revenue beat rate rises to 73%, nearer to the prior quarter's 76% level, suggesting the gap between this quarter and last could narrow as additional sectors report.
Industrial firms are providing early signals that demand may not rebound quickly. Fastenal described end-market demand as "sideways." CSX warned there is "no short-term catalyst" to elevate major industrial markets. Knight-Swift flagged "muted demand" while also suggesting a potentially improved setup in 2026. These comments indicate limited near-term upside in activity for several industrial end markets.
Investor reaction to earnings surprises is a growing concern. Companies that beat both revenue and earnings have, on average, underperformed the S&P 500 by about 40 basis points the next trading day. Historically, such double-beating companies have outperformed by roughly 140 basis points. Intel exemplifies the shift: the stock fell 17% last week after reporting results that beat expectations but accompanied by softer forward guidance.
Guidance overall has cooled after an unusually strong early stretch to the quarter. The ratio of firms issuing above-consensus to below-consensus earnings guidance declined to 0.7x in January, marginally under the historical average. Bank of America notes that this time of reporting is typically the weakest for guidance, and that the current sample of companies remains small.
More than 100 S&P 500 companies are slated to report in the coming week, with high-profile names such as Microsoft, Meta, Tesla and Apple in the queue. Investors are paying particular attention to corporate commentary on AI-related spending and the timelines for monetization.
What this means
- Q4 earnings have been broadly positive but are not matching the elevated beat rates seen in Q3.
- Revenue surprises are down versus the prior quarter, with industrials signaling muted near-term demand.
- Market responses to positive results have turned negative on average, reflecting greater sensitivity to guidance and outlooks.