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U.S. companies have surpassed Wall Street’s profit expectations for the quarter ended in June, but investors don’t seem to care.
Of the 334 S&P 500
SPX
companies that have reported earnings for the quarter ended in June, 79.7% have surpassed Wall Street’s expectations, according to data from Refinitiv that’s up-to-date through noon Eastern Time on Wednesday.
That means U.S. companies are on track to record their highest “beat” rate since the third quarter of 2021, Refinitiv said.
But better-than-expected profit numbers aren’t translating to gains for the companies’ shares.
“…[P]rice reactions post reporting 2Q earnings continue to look muted despite an aboveaverage EPS beat rate,” said a team of equity analysts led by Morgan Stanley’s Mike Wilson in a research note shared with clients earlier this week.
Morgan Stanley analysts tabulated that stocks’ gains within one day of reporting earnings are trending well below the historical average. The average move post-earnings for S&P 500 companies through July 31 has been -0.8%.
MORGAN STANLEY
What’s more, the percentage of S&P 500 stocks climbing within one day after reporting earnings has fallen to 42%, the lowest level since at least the beginning of 2021.
MORGAN STANLEY
This week marks the busiest week of the second-quarter 2023 earnings reporting season, with more than 170 S&P 500 firms due to report before the week is over. Investors will receive earnings from Apple Inc.
AAPL,
and Amazon.com Inc.
AMZN,
two members of the Magnificent Seven group of technology stocks, late Thursday.
Analysts have offered up several reasons for the seemingly lackluster reaction to earnings: one is that despite the beats, S&P 500 firms are, in aggregate, on track to see earnings shrink 7% compared with the second quarter of 2022.
Also, the magnitude of earnings beats has been smaller than in recent years.
U.S. stocks have rallied sharply since the start of 2023, with the S&P 500 up 17.5% and the Nasdaq Composite up 33.5% through Wednesday’s close.
These gains created a high bar that might be difficult for companies to clear, said Nadia Lovell, senior U.S. equity analyst at UBS Global Wealth Management, during an interview with MarketWatch at the outset of earnings season.
See: U.S. stocks typically rally during earnings season. Here’s why this summer might be different.
U.S. stocks finished lower on Wednesday, with the S&P 500 falling 1.4% to 4,513.39, its first decline of more than 1% since May 23, according to FactSet data. The Nasdaq Composite
COMP
fell by 2.2% to 13,973.45. The Dow Jones Industrial Average
DJIA
declined by nearly 350 points, or 1%, to 35,282.52.
