An analysis using a proprietary indicator is reported to measure stock-price reactions after earnings announcements by Japanese companies. The current earnings sentiment index is 42.5%, indicating that investor assessments remain somewhat cautious.
This article introduces a method for aggregating individual-stock reactions based on EAR (excess return at the time of an earnings announcement), which evaluates stock-price movements before and after an earnings announcement by comparing the stock's rise or fall with the movement of the overall market. EAR is calculated as the difference between the cumulative return over the 3 business days comprising the day before the earnings announcement, the announcement day and the following day, and TOPIX's return over the same period.
The "earnings sentiment index" calculated using this indicator represents, on a scale of 0% to 100%, the percentage of TOPIX500 constituents with positive EAR. Its movements reflect overall market trends, and an index above 50 is interpreted as indicating that positive reactions are more common.
The current earnings sentiment index stands at 42.5%, between 40% and 50%. This means that fewer than half of the stocks have outperformed TOPIX in their price reactions around earnings announcements, while also suggesting that investor assessments are not excessively optimistic.
A level above 50% is being watched as a "recovery benchmark after a bottoming out." Although the index has been showing signs of recovery in 2026, it remains below 50% at present. A shift in market sentiment may emerge depending on future earnings announcements.