Market Quote: Equity Markets Are Back on a Roll, Positive Earnings Results Roll in
Author: The editor's desk
May 8, 2024
A mid-week analysis of what’s happening in global financial markets from the perspective of AGF’s investment management team.
May Flowers
Global equity markets seem to be on a roll again after going through a rough patch in early April that resulted in some indexes like the S&P 500 falling more than 5% in about three weeks. The pullback was hardly surprising given how aggressive the run up in stocks had been since late October and may also be seen as one of the necessary conditions for triggering the next leg up.
The other key of course is the relationship between central banks and investors and whether they can continue to see eye-to-eye as the former tries to navigate the current environment of stickier-than-expected inflation.
Not Missing a Beat
Over 80% of the S&P 500 Index’s market capitalization has reported quarterly earnings thus far, with results generally stronger than expected. Just under 80% of companies beat consensus earnings per share (EPS) estimates and did so by an average of roughly 8% — one of the strongest positive surprises since 2021. The strongest magnitude of “beats” was seen in the Communications, Consumer Discretionary, and Real Estate sectors, while Energy and Utilities showed the weakest beats.
However, we have witnessed asymmetric stock price reactions, with earnings beats rewarded much less and misses punished much more than history, highlighting lofty expectations in many areas of the market. As of earlier this week, companies that beat on both EPS and sales traded up roughly 0.8% on their reporting day (versus 1.3% historically) while those missing on both traded down 4.4% (versus. 2.8% historically) per Morgan Stanley. Furthermore, stocks that are crowded or “overweight” by fund managers have underperformed those that are “underweight” in both beat and miss scenarios, highlighting potential opportunities in out-of-consensus parts of the market.
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