Can the Nasdaq snap its five-day losing streak? U.S. futures signal it could happen.
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Good morning. After Monday’s steep sell-off, U.S. futures are bouncing back as the clock ticks down on stimulus talks. European stocks, meanwhile, are mostly in the green, buoyed by decent bank earnings. Paradoxically, the revered “beat” just isn’t impressing investors any more. I’ll explain more on that below.
But first, let’s see what’s moving the markets.
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What do blue chips Halliburton and IBM have in common?
They both reported impressive earnings “beats” yesterday only to see shares, gulp, fall.
There was a time when a top- and/or bottom-line beat would send shares soaring. As CEOs are finding, that’s no longer a guarantee.
“While it is too early to draw any conclusions, there have been no rewards for beats at all so far this earnings season,” BofA equities analysts wrote in an investor note yesterday. “Companies beating on both top and bottom lines underperformed the S&P 500 by 0.8ppt the day after (-0.7ppt ex-Financials).”
This phenomenon isn’t some fluke of the COVID era. It’s part of a trend that BofA says goes back at least the past six quarters.
Now, it’s important to note that it’s still far better for a company to report a beat than a miss, as this BofA chart shows.
A company that misses on both profits and sales will see, on average, shares underperform the S&P 500 by 1.5% in the first full trading session, and see even more a lag over the first five trading days. (See blue shaded line at the bottom of the chart). A dual sales/profits beat, meanwhile, translates to an underperformance of 0.8% and 1.3% over the same periods. (See penultimate blue-shaded line in chart above.)
What’s frustrating to CEOs, no doubt, is that there’s not really much of an explanation beyond this being the new normal of the markets. The earnings calendar just isn’t the catalyst it once was.
And you wonder why so many chief executives would prefer to ditch the quarterly-reporting slog and simply go to twice yearly reports?
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Have a nice day, everyone. I’ll see you here tomorrow.
Bernhard Warner
@BernhardWarner
Bernhard.Warner@Fortune.com
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