What's going on?

Computing giant IBM�s fierce financials saw its stock price rise 3% on Wednesday, and it isn�t the only stunner on the catwalk. But are positive surprises really so in fashion this earnings season?

What does this mean?

IBM�s revenue grew (just) last quarter compared to a year before, thanks to a new mainframe model and strong software sales from a trendy Red Hat. That was a relief for investors who�d dealt with falling revenue for the previous five quarters.

Overall, 72% of US companies reporting fourth-quarter earnings so far have flaunted better-than-expected profits. That�s in line with the five-year average: companies prefer to underpromise and overdeliver. Appearances can be deceptive, however. These earnings have only been 1.1% better than expected on average, compared to a 4.9% average beat over the last five years.

Why should I care?

For markets: Waning energy.

Pleasant surprises are always more likely when expectations are low � and investors� are lowering still. Across the US stock market, analysts now expect last quarter�s earnings to come in 2.1% lower than in 2018, compared to 1.5% at the start of January. Pessimism is principally pumping from the energy sector, where profits are expected to drop more than 40% from a year before. A low oil price and increasing costs have already hurt support firms like Baker Hughes, with all eyes now on US production giants Chevron and ExxonMobil�s earnings next Friday.

The bigger picture: Who will buy?

The low oil price is partly due to a general economic slowdown that�s also taking a big bite out of consumer discretionary companies: firms that make goods people want, but don�t need. The sector�s overall fourth-quarter profits are expected to end up 14% lower than in 2018, but there may be hope in store: luxury retailer Burberry raised its profit outlook on Wednesday thanks to particularly strong performance in China last quarter. Nevertheless, the rise of a deadly virus in the country could yet dampen consumer demand…