Earnings season is winding down, and S&P 500 companies have missed top- and bottom-line estimates at a higher rate than usual. But stock prices aren't being punished for those disappointing results.
Thus far, 69% of S&P 500 companies have reported Q4 2022 results, with 69% topping earnings estimates, which is below the five-year average of 77%. Meanwhile, 63% have reported better-than-expected revenue results.
You'd think investors would punish companies that miss earnings and sales estimates, but that isn't the case, at least this quarter.
"To date, the market is rewarding positive earnings surprises slightly more than average and punishing negative earnings surprises much less than average for the fourth quarter," said John Butters, senior earnings analyst at FactSet.
He continued, "Overall, 39% of the S&P 500 companies that have reported a negative EPS surprise for Q4 have seen a price increase two days before the earnings release through two days after the earnings release."
Butters speculated that the positive reaction isn't related to earnings outlooks for the first quarter, which have been more negative than average. In fact, 82% of S&P 500 companies (58 out of 71) issuing EPS guidance for Q1 2023 have lowered estimates. This percentage is well above the five-year average of 59% and the 10-year average of 67%.
It seems investors are giving stock prices more leniency in a difficult macro environment, driven by persistent inflation.
Early Tuesday, the January consumer price index (CPI) showed firmer price pressures, as the annual inflation rate dipped less than expected. The core CPI inflation rate, which strips out food and energy, also came in hotter than predicted.
S&P 500 Stocks Meta, Tesla Soar On Earnings
Facebook parent Meta Platforms soared more than 23% on Feb. 2. Earnings fell short, but revenue, sales guidance and average daily users (DAUs) topped views. The social media giant also announced a $40 billion stock buyback.
Meanwhile, Tesla surged 11% on Jan. 26 after the electric-vehicle maker reported mixed fourth-quarter results, topping earnings estimates but missing on revenue. Tesla stock has nearly doubled from Jan. 6 lows.
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