Stocktake: Investors shrug even as earnings soar

Companies usually beat expectations, but not to this degree

For companies, it’s turning out to be an earnings season to remember; for investors, not so much.

Companies usually beat expectations, but not to this degree. So far, 87 per cent have surpassed analyst estimates – a record high, notes Schwab strategist Liz Ann Sonders, and way above the average figure of 65 per cent.

Even more remarkable is the size of the beat – earnings are coming in 23 per cent higher than estimates, compared to an historical average of less than 4 per cent. Annual earnings growth is running at levels unseen in over a decade, while profit margins have risen to 12.8 per cent – their highest level in history.

The scale of the rebound is huge, but investors have "mostly yawned", says Sonders, who notes the average company beating estimates has actually slightly underperformed the S&P 500 on the day of the reports. Underperformance is especially marked among tech stocks, notes veteran strategist David Rosenberg, even though an incredible 95 per cent have topped estimates.


A lot of optimism was clearly baked into market prices, given the fact investors have shrugged even as companies trounced expectations.

In this respect, markets are sticking to the historical script; Sonders notes annualised stock returns have averaged only 2.4 per cent when earnings growth has been at its strongest – further evidence that this is “not a time for FOMO-driven [fear of missing out] investment decision making”.