Enjoy the Show
EARNINGS SEASON is wrapping up on Wall Street. Analysts��� predictions and companies��� profit guidance is a bit of a dog-and-pony show, as HumbleDollar contributor Kyle Mcintosh recently described. Still, there���s some useful information to be gleaned from second-quarter results and from executives��� comments.
In particular, I look forward to the FactSet weekly earnings season update to see which pockets of the stock market have the best and worst figures. According to last��Friday���s report, a whopping 87% of S&P 500 firms have reported better-than-expected earnings, versus an average beat rate of 75% for the past five years. For many decades now, public companies have endeavored to beat the consensus earnings estimate by a smidgen, sometimes just a penny. Company executives, along with many investors, see it as a win. It���s all part of the show.
What I find more telling is how stocks perform after companies report results. Intuitively, a stock should pop after a big positive earnings surprise, right? Bank of America tracks the share-price performance of companies reporting earnings relative to the S&P 500. During the current earnings season, firms that beat on both revenues and earnings outperformed the market by less than 1% the day after posting results. The historical average since 2000 is closer to 2%-plus. Much ado about very little? It seems that way to me.
Moral of the story: Don���t get caught up in the show. Financial television frames each earnings report as a make-or-break moment for the stock and the broader market. It isn���t. Maybe you���re like me and enjoy the spectacle. But in the end, never forget that earnings season comes, goes���and is quickly forgotten.
In particular, I look forward to the FactSet weekly earnings season update to see which pockets of the stock market have the best and worst figures. According to last��Friday���s report, a whopping 87% of S&P 500 firms have reported better-than-expected earnings, versus an average beat rate of 75% for the past five years. For many decades now, public companies have endeavored to beat the consensus earnings estimate by a smidgen, sometimes just a penny. Company executives, along with many investors, see it as a win. It���s all part of the show.
What I find more telling is how stocks perform after companies report results. Intuitively, a stock should pop after a big positive earnings surprise, right? Bank of America tracks the share-price performance of companies reporting earnings relative to the S&P 500. During the current earnings season, firms that beat on both revenues and earnings outperformed the market by less than 1% the day after posting results. The historical average since 2000 is closer to 2%-plus. Much ado about very little? It seems that way to me.
Moral of the story: Don���t get caught up in the show. Financial television frames each earnings report as a make-or-break moment for the stock and the broader market. It isn���t. Maybe you���re like me and enjoy the spectacle. But in the end, never forget that earnings season comes, goes���and is quickly forgotten.
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