Q3 Earnings Were Just Like The First Half

More On Q3 Earnings

Not only are the percentage of companies reporting beats and the beat rate better than average, but also the percentage of companies issuing negative guidance is lower than average. 58 companies have issued negative guidance and 28 have issued positive guidance. Just like how companies usually beat estimates, most of the time the guidance is negative. The negative guidance rate of 67% this quarter is below the 75% average. Technology and energy are leading the charge. Energy is expected to have 135% earnings growth which is higher than the 109.6% growth expected at the beginning of the quarter. Technology is expected to have 19.5% earnings growth which destroyed the estimate at the start of the quarter for 8.8%. Keep in mind these updated estimates are blended, meaning they included estimates and reports. The blend is mostly actual results because 91% of S&P 500 companies have reported earnings. 17 firms will report earnings this week.

Beats Barely Gives Investors Any Profits

For those who are claiming the stock market is in a bubble, you can counter that point by showing how stocks are reacting to earnings reports. In a bubble, you’d expect stocks to go up on good and bad earnings. Instead, stocks are getting pummeled when they report bad earnings and they are barley going up when they report good earnings. On average, stocks that missed earnings were down 3.5% when they missed EPS estimates. That’s below the 5 year average which is down 2.4%.

The earnings beats also don’t provide much to investors either. As you can see in the chart below, the average earnings beat pushes stocks up 1.2%. This quarter stocks are only up 0.4% after beats. It’s better than last quarter which had stocks down 0.3% which was remarkable considering the good news coming out. Keep in mind this is the average price change between 2 days before a report and 2 days after the report, so it captures when stocks sometimes bounce back or correct the second day after the report. You can argue that stocks are running up too much prior to quarters. While that might be true, the fact that everything isn’t considered amazing shows the market isn’t euphoric.