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Victor Niederhoffer on Earnings Reports

Of the 162 S&P 500 companies that had reported quarterly earnings through July 21, 130 reported earnings increases over the previous quarter when the previous quarter was also up, averaging 21%. Four were unchanged, four went from a down quarter to an up quarter and 24 went from an up quarter to a down quarter. The average increase in earnings was approximately 14% versus a predicted 12% as of June month-end. About two thirds have beaten their estimates and one third are at or below their estimate.

Often the stock market goes down sharply when a company announces an earnings shortfall at the end of the day. This is one of the best examples of regression fallacies, and can be analogized with the baseball statistic, that a batter with an average above his norm during the first half of the season, tends to drop his average by about half from its excess above the mean, in the second half of the season.