As markets surge to record highs, analysts are rushing to ratchet up earnings estimates as optimism explodes.

“The first quarter of 2021 marked the largest increase in the bottom-up EPS estimate during a quarter since FactSet began tracking the quarterly bottom-up EPS estimate in Q2 2002. The previous record was 5.4%, which occurred in Q1 2018 after tax reform was passed.” – FactSet

Earnings Optimism Explodes, #Fundamentally Speaking: Earnings Optimism Explodes

Of course, with market’s at record highs, Wall Street needs drastically higher estimates to rationalize bullish allocations. However, before we get into the risks of forward expectations, let’s review what happened.

A Disappointing Past

Through the end of 2020, quarterly operating earnings increased $0.01 to $38.19 from $38.18 at the end of 2019.

You read that correctly.

Quarterly operating earnings, which are mostly useless as companies exclude all the “bad stuff” and fudge the rest, increased by just $0.01 while markets exploded 16.28% in 2020.