The Macro Regime remained in a Normal Expansion for a 26th consecutive month, confirming strong revenue and earnings trends. 1Q26 EPS reporting is tracking as one of the strongest quarters for EPS/SPS beats on record outside of the Covid Recovery period. Earnings surprise rates are high across categories (Cyclical, Defensive, etc.,), industry groups (Software is a notable point of weakness), and factors. Beats are broad based, not concentrated.
Our Macro Regime Classification Model continues to put near 100% odds on the U.S. being in an economic expansion. This is the 26th consecutive month the model has indicated the U.S. is growing. The backup in yields and inflation expectations have not dented the expansion so far.
Importantly, the distribution of earnings surprises confirms the strength is broad-based, not skewed. Every surprise-magnitude beat bucket, this quarter sits above that bucket’s historical median; in every miss bucket by any magnitude, this quarter sits below its median. Normal Expansions do not produce structurally higher EPS or Sales beat rates than other regimes. The current 80.3% EPS beat rate is exceptional for this backdrop. The strength is idiosyncratic to this quarter, rather than a regime artifact.
S&P 1500 Earnings Revision ticked up significantly in the third week of reporting. The level is 75th percentile and the slope was significantly steeper than any historical trend and the prior (very strong) quarter. As we highlighted two weeks ago (HERE), all Street had been slow to revise estimates higher into the market rebound; revisions have now caught up materially with the strong earnings prints.
At the end of this report we highlight the names that report next week that have the greatest beat and miss potential based on our factor + sentiment mondel.
Earning Season Unusually Strong Relative to the Economic Regime: The Macro Regime remained in a Normal Expansion for a 26th consecutive month. Economic strength is being confirmed by fundamental trends. 1Q26 is tracking as one of the strongest EPS and Sales beat quarters on record outside of the Covid Recovery period. Positive Earnings surprise rates are high across categories (Cyclical, Defensive, etc.,), industry groups (Software is a notable point of weakness), and factors. Beats are broad based, not concentrated.
Our Macro Regime Classification Model continues to put near 100% odds on the U.S. being in an economic expansion. This is the 26th consecutive month the model has indicated the U.S. is growing. The backup in yields and inflation expectations have not dented the expansion so far. Those sources of weakness have been offset by easier aggregate FCI, and strong fundamentals.
During 1Q26 reporting, both EPS and Sales beat rates have reached extremely high levels. The EPS beat rate is a new post-Covid Recovery high and the Sales beat rate is a >90th %tile reading. Both figures sit roughly 10 percentage points above their historical medians, pointing to unusually strong earnings power in 1Q26. Absent a meaningful change in the macro outlook, strong consumer and business demand growth, and massive investment, suggest strong earnings trends to carry into 2Q26.
More importantly, the distribution of earnings surprises confirms the strength is broad-based, not skewed. Every surprise-magnitude beat bucket, this quarter sits above that bucket’s historical median; in every miss bucket by any magnitude, this quarter sits below its median. The pattern is consistent with broad outperformance versus history rather than a tail driven outcome.
Looking at Earnings Beat Percentage by Macro Regimes, Normal Expansion do not structurally produce higher EPS or Sales beat rates than other regimes. The current 80.3% EPS beat rate is therefore exceptional given the regime backdrop. The strength is idiosyncratic to this quarter, rather than a regime artifact.
1Q26 also shows an asymmetric market response: extreme beats are rewarded more than usual, and misses are punished more than usual. Excess returns for surprises greater than +20% are above normal, while excess returns for misses are running below their historical medians. In a quarter with so few miss names, investors appear to be especially sensitive to the negative outliers that stand out against the strong tape.
S&P 1500 Earnings Revision ticked up significantly in the third week of reporting. The level is 75th percentile and the slope was significantly steeper than any historical trend and the prior (very strong) quarter. As we highlighted two weeks ago (HERE), all Street had been slow to revise estimates higher into the market rebound; revisions have now caught up materially with the strong earnings prints.
It is growing harder to find earnings misses. In 1Q26, S&P 500 EPS beat rate is running ~10 percentage points above its historical median and beat rates across all five factor baskets we track during reporting are above their respective medians. The standout is our Long Basket— High Earnings Quality names with positive earnings sentiment —which has posted a 90% beat rate, leading every factor group we track. By contrast, the Short Basket — High Earnings Turbulence names with negative sentiment — has the lowest beat rate of the five baskets this quarter.
High Earnings Quality names with positive earnings sentiment have higher earnings beat rates than high Earnings Turbulence names with negative earnings sentiment. Both baskets beat rate are far above their medians now, though the short basket beat rate has ticked up this quarter. We have our tradable swap on Morgan Stanley with ticker MS22Beat on Bloomberg can take full advantages of the earnings beat factors and this current strong earnings season.
129 S&P 500 companies are going to report next week. Anyone who wants to play strategically for the individual names can contact Jeff Jacobson, 22V Derivativities Strategists, for options strategies. Below we list the names with high Earnings Quality Score with positive earnings sentiment, which used to have higher potential of beat. We also have our tradable swap on Morgan Stanley with ticker MS22Beat can take full advantage of the earnings beat factors.
And names with high Earnings Turbulence Score with negative sentiment score, which used to have higher risk of missing.
