According to a report from the Wall Street Journal,shareholders usually reward companies that beat earnings estimates and punish those that fall short. But now, they’re doing so more than usual.
So far this quarter, companies that beat Wall Street’s profit estimates have outperformed the broader market by 3.5%, according to Adam Parker, Morgan Stanley’s top U.S. stock-market strategist. Those that missed earnings estimates lagged the market by 4.5%. In contrast, over the past five years, companies that beat forecasts outperformed by an average of 1.6%, according to Thomson Reuters, while those that missed underperformed by 3.4%.
Of the 126 companies that have reported, 69% have topped forecasts, according to FactSet. That lags behind the 73% of companies beating forecasts, on average, over the past four years.
The bar is being lowered for companies’ 2014 financial performance, according to the report. Analysts have cut their forecasts for per-share earnings for the full year by 0.7%, Morgan Stanley says.
Investors said they were focused on sales growth ahead of the fourth-quarter’s earning season, but sales figures are actually sparking less of a reaction than profits so far this quarter, Morgan Stanley found. Shares of firms that beat sales forecasts have outperformed by 3.2%, while shares of firms that missed forecasts have underperformed by 2.4%.
Sales growth is on pace to rise 0.9%, solidly above the 0.3% expected before the start of fourth-quarter reporting season, according to FactSet. Still, companies in the S&P 500 are showing the widest margin between sales and profits since the second quarter of 2012.
