U.S. companies posted their strongest earnings in 13 years, with almost 75% of those in the S&P 500 topping earnings estimates, but the stock market was unimpressed.
After rising almost steadily in recent weeks, the major market indexes retreated, falling three sessions out of five last week, and the Dow Jones industrial average retreated below 22,000, the record it broke on Aug. 2. (It rebounded above that level in intraday trading Monday.)
“Companies that beat on both earnings-per-share and sales expectations were met with muted price responses this quarter,” writes Richard Turnill, BlackRock’s global chief investment strategist, in his weekly market commentary.
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“The S&P 500 companies beating on EPS and sales have on average traded flat compared to the benchmark on the day after earnings release, versus nearly 1% outperformance last quarter … Companies that have missed on both earnings and sales were hit particularly hard, especially in Europe.”
In other words, earnings still matter, but possibly more on the downside than the upside.
“The market is rewarding positive earnings surprises much less than average and punishing negative earnings surprises in line with recent averages,” according to FactSet.
There was a lot more upside in the latest earnings reports.
In its latest earnings analysis, FactSet reports that 73% of the 91% of S&P 500 companies that have already reported their Q2 earnings surprised on the upside while 69% reported positive surprises for sales. The blended earnings growth rate was 10.2%.