August 10, 2022
Investors have been particularly conscious of earnings success over the last year. However, in the early innings of Q2’s earnings reports showcase, that conscientiousness has failed to materialize in the same way.
A new article published in the Wall Street Journal shows that earnings misses in Q2 2022 have only resulted in a tiny negative reaction from investors, at least among roughly a fifth of S&P 500 companies which had reported on Friday by the market close.
The average drop in share price among companies which missed “consensus earning estimates” – that’s the analysts’ collective “best guess” – was only -0.1%.
In other words, investors have mostly been unphased by weak earnings so far this earnings season. That could be because they expected much worse. Take Netflix and Tesla as an example – they didn’t knock it out of the park, but they made it to first base (which is more than the investing public clearly expected.)
Of course, there are the outliers – and there are plenty from recent days: United Airlines and Snapchat are two high-profile corrections which have taken place in recent days, largely in-part because investors actually were hoping for better than what they reported.
However, these two opposite cases solidify that earnings season is as much a game of investor expectations as it is about actually reporting meaningful quantities.