Stocktake: Investors shrug even as earnings soar

Companies usually beat expectations, but not to this degree

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

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

 

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”.

The Irish Times Logo
Commenting on The Irish Times has changed. To comment you must now be an Irish Times subscriber.
SUBSCRIBE
GO BACK
Error Image
The account details entered are not currently associated with an Irish Times subscription. Please subscribe to sign in to comment.
Comment Sign In

Forgot password?
The Irish Times Logo
Thank you
You should receive instructions for resetting your password. When you have reset your password, you can Sign In.
The Irish Times Logo
Please choose a screen name. This name will appear beside any comments you post. Your screen name should follow the standards set out in our community standards.
Screen Name Selection

Hello

Please choose a screen name. This name will appear beside any comments you post. Your screen name should follow the standards set out in our community standards.

The Irish Times Logo
Commenting on The Irish Times has changed. To comment you must now be an Irish Times subscriber.
SUBSCRIBE
Forgot Password
Please enter your email address so we can send you a link to reset your password.

Sign In

Your Comments
We reserve the right to remove any content at any time from this Community, including without limitation if it violates the Community Standards. We ask that you report content that you in good faith believe violates the above rules by clicking the Flag link next to the offending comment or by filling out this form. New comments are only accepted for 3 days from the date of publication.