Key Highlights

● 83% of S&P 500 companies beat EPS estimates, above the five-year average of 78%.

● The aggregate Earnings surprise was just 2.1%, against a five-year average of 7.5%.

● Twilio, Reddit and Intel all beat profit estimates yet fell sharply before Friday's open.

● The S&P 500's forward 12-month P/E ratio stood at 18.7 as of Oct. 23.

This week's market has delivered a lesson that earnings-season data had already hinted at: lots of companies are beating forecasts, but not by much, and investors are punishing anything that looks like a slowdown. Twilio (NYSE:TWLO), Reddit (NYSE:RDDT) and Intel (NASDAQ:INTC) all beat third-quarter profit estimates and still fell sharply before Friday's open.

The scorecard

The most recent market data update retrieved, dated Oct. 23, when 24% of S&P 500 companies had reported, showed that 83% had beaten EPS estimates. That's above the five-year average of 78% and the 10-year average of 77%. A newer weekly update was not available in the sources reviewed.

The size of those beats tells a different story. In aggregate, companies reported earnings just 2.1% above estimates, compared with a five-year average of 7.5% and a 10-year average of 8.0%. On revenue, only 66% of companies beat, below the five-year average of 70% and the 10-year average of 68%, with an aggregate Revenue surprise of 1.2%.

A senior earnings analyst at the data provider wrote that "the magnitude of earnings surprises is below recent averages." In other words, analysts have set the bar about right, leaving little room for the big upside surprises that typically lift stock prices.

How it's playing out this week

The pattern has repeated across sectors. Twilio's adjusted EPS of $1.65 beat the $1.47 estimate, yet the stock was down about 20% at 8:23 a.m. ET, according to a pre-market table, because its fourth-quarter outlook implied slower organic growth. Reddit beat on revenue and EPS and was down about 22% on a light fourth-quarter guide and weaker US traffic. Intel's adjusted EPS of $0.52 beat the roughly $0.40 forecast, but its fourth-quarter revenue guide sent shares down about 25%.

The reverse has also happened. Mondelez (NASDAQ:MDLZ) beat estimates with adjusted EPS of $0.78 versus $0.71 and was up 6.81% at 8:23 a.m. ET. Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX) beat as refining margins surged, and both were up about 2% before the bell. Investors are rewarding beats that come with steady or improving guidance and punishing beats paired with any deceleration.

Media reports citing market data said Friday that about half the S&P 500 has now reported. One fund strategist summed up the mood: "The earnings bar is very high."

Why it matters

Sector by sector, the picture is uneven. As of Oct. 23, 10 of 11 sectors were reporting year-over-year earnings growth, led by energy, information technology, communication services and materials, according to the data provider. Health care was the only sector expected to show a decline. Energy estimate increases and positive surprises from tech and financials have driven most of the improvement since September.

Valuations leave little room for disappointment. The S&P 500's forward 12-month price-to-earnings ratio was 18.7 as of Oct. 23, below the five-year average of 19.8 and down from 19.0 at the end of September. That's not extreme on its face, but the index's biggest members trade at much higher multiples and are now being judged on Cash Flow as well as earnings.

Counterpoint: a beat rate above 80% means corporate America is broadly executing, and growth is strong. Market data points to blended third-quarter EPS growth of 29.5% and revenue growth of 12.7%, the eighth straight quarter of double-digit earnings growth if it holds.

What to watch: more than 100 S&P 500 companies report next week, including Apple (NASDAQ:AAPL) on Monday and AMD (NASDAQ:AMD), Qualcomm (NASDAQ:QCOM) and Palantir (NASDAQ:PLTR) later in the week. Whether those reports bring bigger surprises, or more beat-and-fall reactions, will help decide whether November starts on a firmer footing.