Despite earnings season, the stock market’s gains over the past week could not be sustained.
The S&P 500 (^GSPC) rose aggressively toward record highs at the beginning of the year, but fell in April as rising bond yields and lower expectations for Federal Reserve rate cuts dampened investor enthusiasm.
And given that some of the darlings of the market’s rise have seen their stock prices rise significantly, even strong results haven’t moved the stock price needle.
“The whole market is having digestion issues in and around this earnings season,” Julien Emanuel, head of equities, derivatives and quantitative strategy at Evercore ISI, told Yahoo Finance.
This was prevalent across stock reactions the day after quarterly results for the 65 S&P 500 companies that have reported results so far this season. Stocks that beat Wall Street expectations rose 0.8% in the next session, slightly below the 0.9% average over the past few years, according to Emanuel’s research.
Meanwhile, companies that disappointed on both metrics were hit harder than usual, with their average stock price falling 5.8% in the next session compared to the typical 3.1% decline seen over the past five years. .
“Given these expanded assessments, [in the S&P 500]especially with these names that have been in the running for so long, good news may not be good news,” Emanuel said.
Emanuel highlighted recent price action after JPMorgan’s (JPM) results beat Wall Street expectations for both revenue and earnings per share. However, the company’s stock, which hit multiple all-time highs earlier this year, fell on the day of the earnings report after the company did not raise its 2024 interest income outlook as much as analysts had expected.
Citi U.S. equity strategist Scott Kronert echoed Emanuel’s view following the move.
“Markets are pricing in a Goldilocks scenario likely to play out this year, with further downside risks posed by ‘good but not good enough’ news,” Kronert wrote in a note to clients on the day JPMorgan released its results. “I’m here,” he wrote. “Although it is very early, the first set of first-quarter reports from banks highlights the risk that guidance will fall short of implied high growth expectations, even though the overall fundamental picture remains healthy. I have to.”
A similar story unfolded Friday after Netflix (NFLX) beat Wall Street’s profit and revenue expectations, with earnings per share up more than 83% year-over-year. But investors appear to be fixated on second-quarter revenue guidance of $9.49 billion instead of $9.51 billion, among other factors. The company’s stock, which has risen more than 150% in the past 18 months, fell more than 8% on Friday.
Mark Mahaney, an analyst at Evercore ISI, said the biggest reason for the stock’s drop after the news was simply that “expectations were high, but this wasn’t a rally.” [guidance] quarter. “
This comes as investors are scheduled to have one of the busiest S&P 500 financial reporting weeks of the quarter. Meta Inc. (META), Microsoft Inc. (MSFT), and Alphabet Inc. (GOOGL, GOOG) are among the major companies reporting earnings this week, but all three face tough comparisons. Meta is expected to see profits rise more than 96%, according to Bloomberg data. Meanwhile, analysts expect Alphabet’s current quarter profits to increase more than 30% from a year ago. Microsoft is expected to grow by nearly 16%.
All three stocks are among the top 10 stocks in the S&P 500 by market capitalization, and Goldman Sachs noted on April 5 that they are expected to be a driving force. Index revenue growth for the current quarter. The top 10 stocks in the S&P 500 (mainly the Magnificent Seven) are expected to increase their profits by 32% in the first quarter. Meanwhile, the other 490 stocks are expected to decline by 4%.
Liz Young, head of investment strategy at SoFi, said the performance of these companies is “critically important” to the future direction of the market, given the recent market turmoil over rising yields and the lack of hope for Fed rate cuts. said it would be. On Friday, I wrote this on X (formerly Twitter):
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
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