This week, we’ll get Q3 earnings announcements from some big names including Microsoft (MSFT), Alphabet (GOOG, GOOGL), Meta Platforms (META), Apple (AAPL), and Amazon (AMZN).
For their investors’ sake, the companies will hopefully report some great results. Because so far, the market hasn’t been friendly to stocks reporting disappointing earnings.
Overall, Q3 earnings season hasn’t been particularly spectacular.
Through Friday, about a fifth of S&P 500 companies had reported their Q3 financial results. According to FactSet, 72% of these names reported earnings per share (EPS) that were better than analysts’ estimates. On the surface this seems like pretty good news.
However, most companies beat expectations in a given quarter. According to FactSet, the 5-year average for companies beating estimates is 77%. The 10-year average is 73%.
So, you could argue that this has actually been a disappointing earnings season so far.
It doesn’t end there. Companies that have beaten expectations aren’t seeing their stock prices climb as they’ve done historically.
In the period of two days before through two days after the earnings announcements, companies that have reported better-than-expected earnings have experienced a modest 0.2% stock price bump. This is below the five-year average price gain of 0.9%.
Meanwhile, companies reporting disappointing earnings are getting punished, falling 5.6% during the same window. This is much worse than the five-year average loss of 2.2%.
Of course, there’s a ton of nuance we’re not addressing here. Some stocks are performing better than average (e.g. Netflix shares jumped 13% after announcing earnings) while others are performing worse (e.g., Snap shares fell 28% after announcing earnings). It’s also possible that many of these stocks are reacting to other news unrelated to Q3 earnings like commentary about the outlook.
Nevertheless, the fact that earnings beats and earnings misses are both generally being met with a relatively weak price response reflects some pretty poor sentiment.
We’re still just in the early innings of earnings season, and so it’s possible for the market reactions to earnings to improve.
But with uncertainty high as the economy continues to slow, it might be a good idea for investors to manage their expectations for now.
What to Watch Today
Economy
- 9:00 a.m. ET: FHFA Housing Pricing Index, August (-0.6% expected, -0.6% during prior month)
- 9:00 a.m. ET: S&P CoreLogic Case-Shiller 20-City Composite, month-over-month, August (-0.80% expected, -0.44% during prior month)
- 9:00 a.m. ET: S&P CoreLogic Case-Shiller 20-City Composite, year-over-year, August (14.10% expected, 16.06% during prior month)
- 9:00 a.m. ET: S&P CoreLogic Case-Shiller U.S. National Home Price Index (15.77% during prior month)
- 10:00 a.m. ET: Conference Board Consumer Confidence, October (106 expected, 108.0 during prior month)
- 10:00 a.m. ET: Conference Board Present Situation, October (149.6 during prior month)
- 10:00 a.m. ET: Conference Board Expectations, October (80.3 during prior month)
- 10:00 a.m. ET: Richmond Fed Manufacturing Index, October (-5 expected, 0 during prior month)
Earnings
- 3M (MMM), Alphabet (GOOG, GOOGL), Archer-Daniels-Midland (ADM), Biogen (BIIB), Boyd Gaming (BYD), Chipotle Mexican Grill (CMG) Chubb (CB), Coca-Cola (KO), General Electric (GE), General Motors (GM), JetBlue Airways (JBLU), Kimberly-Clark (KMB), Mattel (MAT), Microsoft (MSFT), Sherwin-Williams (SHW), Skechers (SKX), Spotify (SPOT), Texas Instruments (TXN), UPS (UPS), Valero Energy (VLO), Visa (V), Wyndham Hotels & Resorts (WH), Xerox (XRX)
