The behavior of U.S. stocks so far this earnings season has been unusual for both companies that beat expectations and those that missed, top equities strategists say.
What's happening: Analysts at Deutsche Bank note that "the S&P 500 is seeing a rare earnings season decline so far of (-4.2%)," compared to an average gain of 2.9% and in especially sharp contrast to the record rally of 11% in Q2.
- And companies are seeing little stock bounce from beating their earnings estimates, "mostly flat relative to the market, instead of typical outperformance (+0.5pp historically)."
On the other hand: Companies that miss earnings expectations are being punished more severely than usual — twice as much, according to calculations from Wells Fargo, which found companies that missed consensus earnings estimates saw an average one-day decline of 4.4%.
- That's on pace to be “the harshest quarterly punishing for missing consensus we have ever seen,” per Wells analysts, citing data that goes back to the first quarter of 2015.
- “We suspect these post-earnings beat-downs largely are a result of equities getting ahead of themselves in prior weeks.”
The big picture: So far, a record 87% of reported companies have beaten EPS estimates, well above the historical average of 73% and prior record 84% in Q2.
- The companies that have reported have beaten estimates by 16.3% in aggregate, just below the record 20.3% in Q2, per DB.
Yes, but: The S&P is on pace for an earnings decline of 14.6% year over year, after a 33% decline in Q2.
- The S&P 500 is 12.5% above where it was at this point in 2019.