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Earlier this month, Yahoo Finance's Josh Schafer noted that a rise in yields and increased volatility in the stock market meant strong corporate earnings wouldn't be enough to fix the stock market.
And with earnings season half over, it hasn't.
New data from Savita Subramanian and the equity strategy team at Bank of America Global Research published Monday showed companies beating expectations aren't seeing their stocks rewarded over the week following these reports.
Through Friday, S&P 500 members that have reported earnings and beat expectations on both the top and bottom line have seen shares underperform the index by 0.3% over the next five trading days. And any one-day benefits have been mediocre, with companies topping Wall Street forecasts on profits and sales seeing shares outperform the S&P 500 by 1% the following day, less than the 1.5% historical average.
In short, during what's been a choppy period for stocks overall, companies that have revealed their latest results to investors are faring even worse.
And what's more, this comes as earnings estimates for the year ahead have declined by less than typically seen during third quarter earnings.
As Bank of America's chart reveals, companies typically steer analysts towards revising down expectations for the coming quarters. This sets up management teams to report results that beat a lowered hurdle, and then realize the "reward" from exceeding lowered expectations.
And while investors bake this game into their models, that today's relative optimism from analysts isn't moving the needle for stocks shows how sour sentiment has become.
In a note to clients on Monday, Oppenheimer Asset Management's chief investment strategist John Stoltzfus lowered his 2023 S&P 500 price target to 4,400 from 4,900, citing both elevated rates and geopolitical tensions.
"Even as economic and corporate earnings resilience have persisted since the end of July, market sentiment soured on stocks as market-priced interest rates moved higher and geopolitical risk ramped up," Stoltzfus wrote.
"Having experienced more than a few Fed Fund hike cycles since 1983 the recent pullback in stock prices is neither atypical in a process of a Fed funds hike cycle nor should turbulence be unexpected with a significant jump in geopolitical risk."
"Earnings are not the problem," wrote Nicholas Colas, co-founder at DataTrek Research, in an email on Monday. "Rates used to be the market's chief concern, but now they share the spotlight with geopolitics."
On Friday, the S&P 500 officially fell into a correction with the index's decline from summer highs reaching 10%. Though perhaps this demerit is all investors needed to find new motivation — on Monday, stocks rallied.
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