If the current rate is sustained, around 77 percent of S&P 500 companies will exceed their earnings estimates in the current earnings season, the second best ‘beat rate’ of a quarterly earnings season in the past six years. Whilst this number seems fantastic, it continues a trend of insincere executives and sympathetic analysts lowering guidance and forecasts to ensure that the lowered bar is exceeded.

Note the earnings expectations for the current earnings season and how they were lowered as the period approached:

Whilst it can be argued that while risks mounted due to the US-China trade war and other factors, it could be expected that earnings forecasts would be lowered, such a drop has occurred pretty much every earnings season for the past few years.

US markets have hit all-time highs this week, largely led by optimism around a possible ceasefire in the US-China trade war, as well as the expectations of a Fed Reserve rate cut when the heads of the US Central Bank meet on Wednesday. Despite this, earnings appear to be peaking, the current quarter’s earnings per share are down just over three percent in the third quarter of 2018, which raises the question as to whether earnings have peaked.

Another factor that has helped reporting companies post better than expected earnings per share results has been the help from an extremely large rate of share buybacks, perhaps the largest ever. As of Q3 2019, more than three quarters of S&P500 had a lower number of shares on issue than in Q3 2018. More than a quarter of them had bought back more than four percent of their outstanding shares – providing at least a four percent tailwind to their current earnings-per-share (EPS).

Investors will be hoping that earnings can start to rise again into 2020, and that will be necessary for further gains to be seen in US equities: “For the market to meaningfully take a step to the upside, investors need to have greater conviction that you’re going to get high single digit or better earnings growth,” “Markets have to get comfortable that you’re going to see a re-acceleration of earnings growth.” According to Jeremy Zirin, head of Americas equities at UBS Global Wealth Management.

Already earnings expectations for next year are being lowered, with the 2020 EPS estimates 4.5% lower than a they were a year ago. However, at present analysts are still expecting an 11 percent rise from 2019 earnings – it is highly likely that this will continue to be lowered, however.

In a note to clients at the start of the month, Morgan Stanley U.S. equity strategist Michael Wilson showed a chart of consensus 2020 earnings forecasts accompanied by two words: “Looks unrealistic”.

“I think we’re going to see a wave of negative guidance on next year’s earnings,” according to Savita Subramanian of Bank of America. “And that might not be great for the market.”