Wall Street analysts have set high expectations for second-quarter earnings of S&P 500 companies, but a recent report suggests that these expectations may be too optimistic. According to the report, 75% of S&P 500 companies have Street Earnings that exceed Core Earnings, indicating a trend of overstated earnings.

In the trailing twelve months leading up to 1Q24, 373 companies in the S&P 500 had higher Street Earnings compared to Core Earnings. This trend continued from the previous quarter, where 370 companies showed overstated earnings. Notably, 42% of S&P 500 companies have Street Earnings that overstate Core Earnings by more than 10%, with 212 companies falling into this category.

These 212 companies represent 26% of the market capitalization of the S&P 500 as of 7/8/24, indicating a significant impact on the overall market. The analysis also reveals that the companies with overstated Street Earnings make up 70% of the market cap, further emphasizing the prevalence of this issue.

On average, when Street Earnings are higher than Core Earnings, they are overstated by 19%, highlighting the magnitude of the discrepancy. Additionally, the report identifies five S&P 500 companies that are likely to miss their 2Q24 earnings due to overstated Street EPS estimates.

Errors in historical Street EPS can lead to inaccuracies in future projections, as investors and analysts often rely on past performance to inform their expectations. This analysis, based on a thorough review of financial statements and filings with the SEC, raises concerns about the reliability of current earnings estimates.