Key insights
- Despite a high percentage of S&P 500 companies beating Q1 earnings estimates, market reactions have been muted. Stocks are not significantly rewarded for beats, while misses are punished severely, indicating negative investor sentiment. This suggests a cautious outlook for US equities, even as major indexes reach record highs, implying potential vulnerability to negative surprises.
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Corporate America started 2026 with one of its best quarters in years. Traders haven't been too impressed.
With results from most of the S&P 500 in the books, 84% of the companies have beat first-quarter earnings estimates, the largest share since the second quarter of 2021 and far exceeding the historical average. But those results have not translated into exceptional stock performance for many of those companies, according to a recent analysis by FactSet. Earnings beats have elicited an average share price increase of 1.1% two days before earnings through two days after earnings, only slightly above the five-year average of 1%. (FactSet uses a four-day window to smooth out share-price movements before the results arrive.)
Meanwhile, investors are punishing earnings misses far more harshly than normal. For companies that missed estimates, the average share price decline in that four-day window has been 4.9%, compared with a five-year average of 2.9%.
Investor sentiment is as important a driver of stock performance as a company's earnings or market conditions. Wall Street's reactions to recent earnings reports suggests sentiment is skewing negative, even as tech stocks propel the major indexes to record highs.
FactSet's data covers earnings reports through last Friday, but this week’s trading has followed that trend. Constellation Energy’s (CEG) earnings beat couldn’t prevent its stock from slipping 1% on Monday. Swiss shoemaker On Holdings (ONON) topped estimates and raised its guidance, yet its shares ticked lower Tuesday. Meanwhile, Under Armour (UAA) and Hims & Hers Health (HIMS) each plummeted double digits Tuesday after their results came up short.
Granted, beating estimates isn’t all that matters to investors. They’re often just as interested in the magnitude of an earnings beats and, in particular, a company’s outlook. But recently the S&P 500 has been exceeding expectations on those fronts, too. In aggregate, earnings have topped expectations by more than 18%, well above average and the most in five years. The share of companies that have given disappointing guidance this quarter is well below average. Analysts, who usually decrease their future-quarter estimates as results come in, have increased them this time around.
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