Nov 19, 2019

A Teflon earnings season

Illustration: Sarah Grillo/Axios

With Q3 earnings season nearly over, investors are applauding, even cheering companies that fall short of expectations or signal next quarter won't be as rosy as previously thought.

Why it matters: Investors' renewed optimism that's pushed stock prices to all-time highs is giving businesses more leeway than in the past.

  • Profits on a per-share basis are still on track to drop 1.2% year-over-year — though, as more reports come in, that figure has improved from initial estimates that had forecast as much as a 3% fall in earnings.
  • “Expectations were low for some of the sectors exposed to the overall economy and trade. Some of those fears have really subsided, creating a good quarter,” James Ragan, an analyst at firm DA Davidson, told the WSJ.

By the numbers: S&P 500 companies reporting fatter profits than analysts expected have seen average share prices pop 2.3% days before and after their report — above the five-year average of 1%, according to FactSet.

  • As for corporations that unexpectedly disappoint, those share prices have fallen an average of 1.5%, less than the 2.6% that stock prices have dropped on average in the past five years when companies missed estimates.

The bottom line: Investors' glee for just-OK earnings is a shift from a year ago. On-edge investors then weren't rewarding the slew of companies that exceeded analysts' profit expectations.

  • Those stocks saw no price change on average, while companies reporting worse news than expected saw an average price decrease of just 3.2% — way above the five-year average price decrease.

What's next: S&P 500 profit estimates have dropped heading into next year. The downgrades, per UBS, are no worse than normal.

What's going on: Analysts scaled back future earnings estimates for 288 of the 461 S&P 500 companies that have reported Q3 results so far.

What they're saying: "The companies report and they lower their guidance. And then the analysts take their estimates a little bit lower from there," Nick Raich, CEO of earnings research firm The Earnings Scout, tells Axios.

  • "So when the companies are set to report, it's a low bar to clear. It's all part of the earnings game."

Go deeper: UBS issues a warning on earnings

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The end of the magic stock market

Illustration: Aïda Amer/Axios

The stock market's magnificent bounce in 2019 has been hard to explain and fueled largely by factors like stock buybacks and central bank easing.

The big picture: But to see an increase in their share prices next year, U.S. companies will have to actually increase their earnings, experts say, a factor that's been notably absent from this year's rally.

Go deeperArrowDec 11, 2019

Macquarie strategists project stock market will double in value by 2030

Illustration: Lazaro Gamio/Axios

Strategists at $234 billion asset manager Macquarie Investment Management laid out an exceptionally bullish prediction for U.S. stocks — their equities team is calling for the market to double in value over the next 10 years.

Why it matters: That would put the Dow at around 55,000.

Go deeperArrowDec 3, 2019

Dollar Tree says the U.S.-China trade war will cost it $19 million in Q4

A Dollar Tree store in California. Photo: Frederic J. Brown/AFP via Getty Images

Dollar Tree said acceleration of the trade war with China would up its costs by $19 million in Q4.

Why it matters: Even as the Trump administration says it’s close to a "phase one" trade deal with China, corporations are bearing down and preparing Wall Street for the worst-case scenario.

Go deeperArrowNov 27, 2019