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First-quarter earnings season is also almost over, and the data so far show that companies that don’t meet investor forecasts are getting punished, The Wall Street Journal reported Sunday.
Companies in the Standard & Poor’s 500 stock index (SPX) are on track to show a 5.4% gain in profits from a year earlier. That’s the biggest increase in almost two years, according to FactSet data cited by the Journal.
However, companies that miss their consensus estimates have fallen an average of 2.8%, a steeper decline than the five-year average of a 2.3% decline. The change is measured from two days before the company reported earnings to the following two days.
Companies that beat estimates aren’t necessarily outperforming historical averages. Those whose earnings were better than forecast rise by an average 0.9%, in line with the five-year average of a 1% gain, the Journal reported.
Analysts quoted by the newspaper said investors are resetting their expectations for monetary policy, which can have a significant effect on relative valuations. The Federal Reserve has kept interest rates higher for longer, making bonds more appealing compared with stocks.
The S&P 500 rose 1.9% in the past week, but is still 0.6% lower than the record high in March. The benchmark of large-cap companies has gained 9.5% this year.
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