Mar 27, 2019 - Economy

Investors aren't punishing companies for bad guidance

Adapted from a FactSet chart; Note: Values shown represent average stock price change in the two days before issuing negative earnings-per-share guidance + average stock price change in the two days after; Chart: Axios Visuals

More companies than usual are signaling that first quarter earnings will come in below analysts' expectations. But investors are selling those companies' stock less than they typically do.

By the numbers: 73% of S&P companies that have given guidance for the first quarter gave negative guidance — that's slightly higher than the 5-year average of 70%.

  • These companies have seen their shares increase 0.8% on average. Typically, these companies see an average of a 0.5% drop in their stocks. If it holds, it'll be the highest average positive price reaction to bad earnings news since 2015, per FactSet.

What's happening: Companies are struggling to pass on labor, transportation and material costs. That's leading to expected profit earnings pullbacks.

What to watch: Investors "do not appear to be pricing in an earnings recession," BlackRock Investment Institute's Jean Boivin wrote in a recent note, despite projections of negative earnings growth for the first quarter of 2019 and significant markdowns for the second quarter.

Go deeper: The earnings-beat game for corporations

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