No good deed is going unpunished this earnings season.
Third-quarter results are in from nearly half of the companies in the S&P 500 SPX, -0.66% Of those, 77% reported earnings per share above the mean estimate — topping the five-year average of 71%, wrote John Butters, senior earnings analysts at FactSet.
That’s not all. Those earnings, in aggregate, have exceeded expectations by 6.5%, above the five-year average of 4.6%, Butters said, noting that has taken the earnings growth rate for the index to 22.5% from 19.3% on Sept. 30.
The stock market, however, has so far been unimpressed (see chart below).
FactSet
Companies that reported positive earnings surprises have seen prices fall, on average, 1.5% from the period two days ahead of the release of their third-quarter results through two days after. Over the past five years, companies that have beaten estimates have seen an average increase of 1% over that four-day period, the data showed.
If that figure holds up, it would mark the biggest average price decline over the four-day window for companies beating expectations since a 2.1% fall in the second quarter of 2011, Butters said.
Companies that report weaker-than-forecast earnings, meanwhile, are getting punished more than usual, falling an average of 3.8% over the four-day window versus the five-year average of 2.5%, according to FactSet.
Earnings season has coincided with a heavy October selloff that investors have struggled to pin to a primary catalyst. Analysts have cited concerns about global growth, fears of a Federal Reserve policy misstep, rising Treasury yields and worries that earnings growth has peaked as potential reasons for a rout that left the S&P 500 just shy of the 10% pullback from its record high necessary to meet a widely used definition of a market correction.
The Dow Jones Industrial Average DJIA, -0.99% meanwhile, is off more than 9% from its early October record.
Some analysts, meanwhile, have tied the subpar, post-earnings performance to poor guidance. Butters argued against that, however. So far, 41 companies have issued earnings guidance for the fourth quarter. Of those, 26 companies, or 63%, have issued negative guidance — below the five-year average of 70%, he said, noting that analysts have also made smaller-than-average cuts to fourth-quarter earnings estimates so far in October.
So the search for an answer continues.
