The S&P 500 is having one of its best earnings seasons ever in terms of beating analyst estimates. Of the 308 S&P 500 companies that have reported thus far, 78.2% have beaten earnings per share estimates. Interestingly, the strong earnings have not translated into share price appreciation on report days. Even though the S&P 500 as a whole is up this earnings season, the average stock in the index has declined 0.54% on the day of its report (for companies that report after the close, we use the next day's change).
Below we have divided the full one-day average performance on earnings days into the initial gap opening and the open to close change. Based on these performance numbers, traders have been selling earnings strength and weakness throughout the trading day. The average S&P 500 company that has beaten estimates has opened up 1.01% at the start of regular trading (9:30 AM ET), but it has averaged a decline of 0.66% from the open to the close of trading. Traders have clearly been selling initial moves higher on earnings. The average S&P 500 company that has missed earnings estimates has opened down 2.89% and then continued lower by another 1.16% from the open to the close. So instead of buying weak earnings, traders have continued to sell them off throughout the day. The average full-day change for companies that have beaten estimates has been just +0.34%, while the average for companies that have missed estimates has been a whopping -4.03%.
Investors have clearly been ho-hum about better than expected earnings, and they have beaten down stocks that missed estimates. Better than expected is simply what's expected these days.
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