(Bloomberg) - US firms beating profit estimates isn’t seen as impressive a feat as it once was.
Companies whose earnings outpaced analysts’ expectations for the second quarter are still underperforming the S&P 500 Index by the most in 18 years on the day after results, according to Goldman Sachs Group Inc. strategists led by David Kostin.
“Investors have not rewarded stocks posting positive surprises,” Kostin wrote in a note.
While Goldman didn’t provide more details on the magnitude of the underperformance, Deutsche Bank Group AG said the median stock which beat on earnings lagged the S&P 500 by 50 basis points on the day of reporting. That’s “quite unusual” as they tend to outperform by a similar level historically, it said.
This has been a common phenomenon this earnings season. Most notably, Microsoft Corp. fell even after beating earnings estimates as investors fretted over a continued slowdown in its Azure cloud-services business. Tesla Inc., which also surpassed expectations, dropped after the carmaker warned of more hits to its already-shrinking profitability. Software firm ServiceNow Inc. also declined even with analysts positive on the results.
Data compiled by Bloomberg Intelligence also show the median US stock which beat has underperformed the S&P 500 — the weakest reaction since the fourth quarter of 2020. That’s happening even as nearly 82% of S&P 500 firms have surpassed analysts’ earnings expectations so far this season, the widest beat rate since the third quarter of 2021.
Kostin said “better than feared” has been the key investor takeaway now that 48% of S&P 500 firms have reported this season.
The S&P 500 is up 1.6% since the earnings season started on July 14, with the reporting period typically being positive for equities. Investors are already looking past this season, with consensus expecting an earnings-per-share recovery in the fourth quarter, according to data compiled by Bloomberg.
By Farah Elbahrawy and Sagarika Jaisinghani
With assistance from Michael Msika
