Let’s unravel the mystery
Traders,
Corporate revenues were way better than expected, especially among the four horsemen of the tech boom (Apple, Amazon, Google, and Microsoft). And yet, their share prices shrugged. What gives?
Welcome to the sometimes tricky business of forecasting asset prices. Good news doesn’t necessarily lead to a positive stock response. Nor does bad news automatically drive prices lower. The problem is we never know what’s priced in.
Apparently, the market successfully baked in the epic earnings and sales growth ahead of time. After having bought the rumor, some traders saw fit to sell the news. The lackluster response wasn’t limited to the tech giants, though. As our Chart of the Day displays, the overall earnings reaction among the stock market was extremely underwhelming.
S&P 500 companies that beat earnings per share (EPS) estimates fell 0.3% on average (relative to the market) the day following their report. Those that missed EPS estimates fell 2% on average.
Smashing stocks that missed is par for the course—but failing to reward those that impress? Now that’s just rude. Again, the most logical argument is that the market foresaw the goodness and buoyed share prices to the moon ahead of time.
If you think that explanation is too cute – or that the selloff is unjustified, then I guess you’re looking to shop the post-earnings dip, aren’t you?
#TeamTackle
Chart of the Day
Good earnings, bad earnings – sell ‘em all!
The response to Q1 2021 earnings has been one of the worst of the past five years. Traders hoping that earnings season would spark the next up leg in the bull market are departing in disappointment. |
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