Each earnings season, most publicly traded companies will report results that beat analysts’ consensus estimates for sales and earnings. Positive “surprises” are set up and expected, with a typical “beat rate” of 70% or so. Investors can take a single quarter’s earnings surprise with a grain of salt, especially if the results are only slightly ahead of expectations. But this doesn’t mean you should ignore the estimates. Over long periods, a pattern of rising estimates tends to drive stock prices higher. And the reverse can be correlated with price declines.
Before diving into the consumer-discretionary sector of the S&P 500
let’s take a look at how the 11 sectors in the benchmark index have performed this year, and at their forward price-to-earnings ratios, based on weighted consensus estimates among analysts polled by FactSet:
Return since end of 2021
Current P/E to 5-yea …