Citi: Earnings season has entered a “two-way massacre,” with the number of US stocks swinging by more than 10% on earnings day surging

As US stock valuations remain at elevated levels, the earnings season is turning into a real “two-way slaughter” — beating expectations no longer automatically means the stock price rises, and even small flaws can trigger heavy punishment. The market’s tolerance for corporate earnings has fallen to its lowest point.

Citi data shows that since 2024, the number of S&P 500 constituent stocks whose share prices moved more than 10% on the day they reported earnings has risen significantly, reaching 30 to 40 in multiple quarters. In the first quarter this year, it even surpassed 60, far above the level in the past decade, when it was typically only 10 to 20 per quarter. This means that large price swings on earnings day are gradually becoming a new normal in US stocks.

More severe still, the earnings threshold in this earnings season is also being raised continuously. Analysts have not only failed to keep cutting earnings expectations as they did in prior years, but instead have repeatedly upgraded forecasts throughout the second quarter, leaving companies with almost no traditional “margin of safety.” Against this backdrop, merely delivering a “beat” is no longer enough to convince the market.

Beating expectations can also fall

Samsung Electronics’ operating profit in the second quarter rose about 19-fold year on year and exceeded market expectations, yet the stock plunged 7% in a single day; PepsiCo’s quarterly revenue beat expectations, but its shares still closed down 3.3%. In sharp contrast, after Micron Technology reported results and guidance that beat expectations on June 25, its stock surged more than 16% in one day, posting the best earnings-day performance in the company’s history.

With “beats” in both cases, the market response has been completely different, reflecting that investors now care more about the quality of earnings, forward guidance, and whether valuation can still support the stock price.

According to Citi’s statistics, the number of S&P 500 constituent stocks whose share prices moved more than 10% on earnings day has continued to climb in recent years. Mark Hackett, chief market strategist at Nationwide, said that over the past nearly two years, this high-volatility pattern in earnings season has persisted almost continuously, and one important reason is that the market’s overall valuations are currently high. He said that only after earnings are released can the market determine whether the prior valuations were reasonable.

Earnings expectations are being revised upward abnormally, and companies lose their “margin of safety”

Compared with previous years, the biggest change in this earnings season is that earnings expectations have not been cut.

By convention, analysts typically step down earnings forecasts gradually during a quarter, creating an easier comparison base for companies to beat expectations. But FactSet shows that from March 31 to June 30 this year, upward revisions on an as-they-come basis for S&P 500 earnings per share increased by 3.4%; in comparison, the average cut over the same period in the past five years was 2%, and the average cut over the same period in the past decade was 2.7%.

In other words, companies are facing an increasingly higher bar.

Anthony Saglimbene, chief market strategist at Ameriprise, said that, similar to the previous quarter, this earnings season has almost no traditional “earnings buffer.” He believes that the market now cares more about whether companies can deliver on full-year guidance, maintain profit margins, and how management looks ahead for the future, rather than just whether quarterly earnings beat expectations.

“Beating expectations” is no longer the finish line

Analysts expect S&P 500 second-quarter earnings per share to rise 23.3% year on year, higher than the 18.8% forecast at the end of March; revenue is expected to grow 12.2%. If this is ultimately delivered, it would mark the second consecutive quarter of the S&P 500 delivering more than 20% earnings growth, and also the fastest revenue growth since Q2 2022.

However, with such high market expectations already priced in, simply delivering earnings above expectations is becoming increasingly difficult to drive share prices higher.

Saglimbene believes that companies need to prove at the same time that profit margins remain solid, that full-year guidance has not deteriorated, and that earnings growth is expanding beyond a small group of AI and tech leaders into a wider range of industries—only then will the market be willing to grant higher valuations.

Hackett also pointed out that even within the same industry, stock performance can diverge dramatically across different companies, and that is the biggest characteristic of the current earnings season.

He added that, unlike earlier earnings seasons where the market had already surged in advance, in this earnings season the S&P 500 has largely traded sideways within a range since mid-May. This means the market has not pulled forward too much optimism ahead of time, leaving some room for the subsequent earnings-driven market moves.

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