With the second quarter of the 2020 reporting season mostly behind us, and with markets testing “all-time” highs, do earnings support the bullish thesis? Such is the fundamental question surrounding the debate over the record deviation between “momentum” and “growth.”

No Real Surprise

As we stated before the earnings season began, the annual “beat the estimate” game would, as always, have a high “beat rate.”

“SO EXCITED! – It’s almost Millennial Soccer season on Wall Street where companies begin to beat estimates on drastically lowered expectations.”

Why do I call it “Millennial Soccer” season? As I explained in “The Truth About Wall Street Analysis.”

Earnings season is now a ‘game’ where no one keeps score. The media cheers, and everyone gets a ‘participation trophy’ just for showing up.”

Not surprisingly, after cutting earnings estimates drastically following the first quarter, companies reported a record “beat” rate.

fundamentally, Fundamentally Speaking: Earnings Don’t Support Bullish Thesis

With 90% of companies reporting, we can safely say – “everyone got a trophy.”

Such a high “beat rate” certainly “seems” to suggest companies are firing on all cylinders, and that currently elevated prices are justified.

However, as they say, the “Devil is in the details.”

Upward Revisions Not What They Seem

Let’s start with the “estimate revisions,” which have been touted by the bulls as clear evidence of support for lofty valuations. The chart below is the “revision breadth” by analysts for the S&P 500.

fundamentally, Fundamentally Speaking: Earnings Don’t Support Bullish Thesis