A number of S&P 500 (^GSPC) companies report quarterly results this week, including Microsoft (MSFT), Alphabet (GOOGL), and Meta (META). Don’t be surprised if an earnings beat gets a “more muted” reaction, according to JPMorgan analysts.
JPMorgan analysts looked at results from 70 companies in the S&P 500 and 90 in Europe so far this earnings season that showed the majority beat consensus projections.
The stock price reactions to the beats are “worse than typical,” Mislav Matejka, head of global and European equity strategy at JP Morgan, and his team wrote in a note to investors this week.
While the analysts acknowledged their sample size is small, the findings may not bode well for stocks.
A look at some of the companies that already reported shows mild or even negative reactions in their stock prices.
Earlier in July, JPMorgan Chase (JPM), Citigroup (C), and Wells Fargo (WFC) all posted higher-than-expected revenue and profit for the second quarter. Shares of all three failed to rally after the banks said they set aside more money for losses from the commercial real estate sector.
Electric vehicle maker Tesla (TSLA) beat Street estimates on earnings by 91 cents, but the stock fell on margin concerns and a third quarter production warning.
Even oil giant Chevron (CVX), which posted preliminary results on Sunday, beat Wall Street expectations on profit, despite lower oil prices. The stock moved up slightly more than 1%.
Why investors aren’t so enthused
Matejka’s team said that “the equity market was strong coming into Q2 reporting season, suggesting buyside expectations are more elevated, even as analyst projections are subdued.”
The Nasdaq Composite (^IXIC) had its best first half of the year in four decades while the S&P 500 rose 19% in the first six months of 2023.
The analysts maintain companies had a “low hurdle” coming into the season with consensus estimates projecting a decline of about 7% in earnings per share among S&P 500 companies.
“Having said that, the stock price reactions in general could be more muted this time, or at least any positive momentum might not have legs,” wrote Matejka.
“This is especially the case if the guidances underwhelm, potentially as activity momentum did show some softening as we moved through the quarter,” he added.
Ines is a senior business reporter for Yahoo Finance. Follow her on Twitter at @ines_ferre.
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Source: https://finance.yahoo.com/news/companies-are-beating-earnings-estimates-heres-why-wall-street-isnt-cheering-183356962.html