We’re now right smack dab in the middle of earnings season, so today we wanted to highlight a couple of interesting sector trends we’ve recently identified.  Thanks to our Interactive Earnings Report Database, we have a list of every single quarterly earnings report for US stocks going back to 2001.  For each report, we know whether the stock beat or missed consensus earnings and revenue estimates and how the stocks performed.

Using our database, we track the rolling 3-month earnings beat rate for all US stocks.  This shows the percentage of companies that are beating consensus analyst earnings per share estimates over time.  We also track the rolling 3-month earnings beat rate by sector.

Below is a chart showing the rolling 3-month earnings beat rate for all US stocks compared to just Technology stocks.  As you can see, from 2002 through 2009, the earnings beat rate for Tech stocks generally tracked the beat rate for all stocks.  But during the current bull market that began in early 2009, we’ve seen Tech stocks separate from the pack when it comes to beating analyst earnings estimates.  Since 2014, the divergence has gotten even more prominent.  As of now, the rolling 3-month earnings beat rate for Tech stocks stands at 75%, while the beat rate for all stocks is just 60%.

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You can see the spread between the beat rate for Tech and the beat rate for all stocks in the chart below.  Over the years, Tech stocks have gotten better and better than the rest of the market at beating analyst earnings estimates.  Whether that’s the result of legitimate strength for the sector (it has outperformed) or Tech accounting departments getting better and better at “beating the number” is a different story.  We honestly don’t know the answer, but it’s probably a little bit of both.

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A counter example is the Industrials sector.  Below is the rolling 3-month earnings beat rate for Industrials stocks versus the 3-month beat rate for all stocks.  Unlike Tech, these two data series have been tracking each other very closely for the last 15 years.  If anything (as shown in the second chart), Industrials stocks have gotten worse at beating estimates.

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