Investors aren't reacting much to earnings season: Morning Brief

Myles Udland

·Head of News

Updated Tue, Jul 28, 2020, 3:15 AM7 min read

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Tuesday, July 28, 2020

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Beats aren’t being rewarded, and misses aren’t punished.

The biggest week of the second quarter earnings season is upon us.

Through Friday, 127 members of the S&P 500 Index (^GSPC), responsible for about 40% of the benchmark’s earnings, had already reported results. This gives us enough of a baseline to see how investors are handling quarterly reports amid an uncertain environment created by the coronavirus pandemic.

And so far, it seems investors just aren’t reacting much at all to individual results.’

“Amid COVID-19, dispersion of S&P 500 consensus estimates hit record levels going into this earnings season,” said Savita Subramanian, an equity and quant strategist at Bank of America Global Research.

‘Dispersion’ is a theme we previously covered in The Morning Brief, and is a technical way of saying analyst estimates were all over the place ahead of earnings.

And so, in this pandemic era, beating or missing expectations just hasn’t generated a lot of response from investors, given that any company’s quarterly results were mostly a guess anyway.

“Last quarter we saw limited Alpha from beats, and so far, we're seeing a similar trend this quarter: beats have outperformed just 1.2ppt on average the following day (vs. historical average outperformance of 1.6 percentage points), and misses have performed roughly in-line with the market (vs. historical underperformance of 2.4 percentage points),” Subramanian wrote.

“If estimates are low quality, beats alone may not be enough to drive the market higher,” she added. And alternatively, if estimates are low quality, it seems a miss isn’t enough to warrant a negative reaction from investors.

Stock reaction during this earnings season has so far been muted relative to history whether a company beats or misses relative to expectations, according to data from Bank of America. (Source: Bank of America Global Research)

On Thursday, one of the busiest earnings days in recent market history will take place when Facebook (FB), Apple (AAPL), Amazon (AMZN), and Alphabet (GOOGL, GOOG) all report results after the closing bell. Together with Microsoft (MSFT), these stocks have risen more than 30% as a group this year — and are the sole reason the S&P 500 is positive year-to-date.

Against this backdrop, Thursday — and this week in general — would seem to be a crucial marker for this rally, and a pivot point. The market’s climb could get either supercharged, or falter and shake the foundation of this recovery.

But this data suggests that right now, individual earnings have become less rather than more important.

Something to keep in mind ahead of some very newsy days for the world’s biggest tech companies.

By Myles Udland, reporter and co-anchor of The Final Round. Follow him at @MylesUdland

What to watch today

Economy

9:00 a.m. ET: S&P CoreLogic Case-Shiller 20-City Composite Home Price Index MoM, May (0.3% expected, 0.33% in April)
10:00 a.m. ET: Conference Board Consumer Confidence, July (94.8 expected, 98.1 in June)
10:00 a.m. ET: Richmond Fed Manufacturing Activity Index, July (5 expected, 0 in June)

Earnings

Pre-market

6:00 a.m. ET: Centene (CNC) is expected to report adjusted earnings of $2.37 per share on revenue of $27.46 billion
6:30 a.m. ET: 3M (MMM) is expected to report adjusted earnings of $1.79 per share on revenue of $7.3 billion
6:30 a.m. ET: DR Horton (DHI) is expected to report adjusted earnings of $1.31 per share on revenue of $5.21 billion
6:30 a.m. ET: Xerox (XRX) is expected to report an adjusted loss of 7 cents per share on revenue of $1.48 billion
6:45 a.m. ET: Pfizer (PFE) is expected to report adjusted earnings of 69 cents per share on revenue of $11.73 billion
6:50 a.m. ET: Harley-Davidson (HOG) is expected to reported adjusted earnings of 17 cents per share on revenue of $785.14 million
6:55 a.m. ET: Invesco (IVZ) is expected to report adjusted earnings of 44 cents per share on revenue of $1.45 billion
6:55 a.m. ET: Raytheon (RTX) is expected to report adjusted earnings of 13 cents per share on revenue of $13.48 billion
7:00 a.m. ET: McDonald’s (MCD) is expected to report adjusted earnings of 74 cents per share on revenue of $3.7 billion
7:00 a.m. ET: MSCI Inc (MSC) is expected to report adjusted earnings of $1.70 per share on revenue of $410.78 million
7:00 a.m. ET: The Sherwin-Williams Co. (SHW) is expected to report adjusted earnings of $5.75 per share on revenue of $4.53 billion
7:00 a.m. ET: JetBlue Airways (JBLU) is expected to report an adjusted loss of $1.98 per share on revenue of $223.27 million
7:00 a.m. ET: Altria Group (MO) is expected to report adjusted earnings of $1.07 per share on revenue of $5.1 billion
7:10 a.m. ET: S&P Global (SPGI) is expected to report adjusted earnings of $2.68 per share on revenue of $1.78 billion

Post-market

4:00 p.m. ET: Amgen (AMGN) is expected to report adjusted earnings of $3.79 per share on revenue of $6.2 billion
4:00 p.m. ET: Visa (V) is expected to report adjusted earnings of $1.03 per share on revenue of $4.84 billion
4:00 p.m. ET: Akamai Technologies (AKAM) is expected to report adjusted earnings of $1.22 per share on revenue of $767.53 million
4:00 p.m. ET: FireEye (FEYE) is expected to report an adjusted loss of 2 cents per share on revenue of $214.75 million
4:05 p.m. ET: Mondelez International (MDLZ) is expected to report adjusted earnings of 56 cents per share on revenue of $5.91 billion
4:05 p.m. ET: Starbucks (SBUX) is expected to report an adjusted loss of 59 cents per share on revenue of $4.08 billion
4:15 p.m. ET: Aflac (AFL) is expected to report adjusted earnings of $1.05 per share on revenue of $5.48 billion
4:15 p.m. ET: eBay (EBAY) is expected to report adjusted earnings of $1.06 per share on revenue of $2.8 billion
4:15 p.m. ET: Juniper Networks (JNPR) is expected to report adjusted earnings of 34 cents per share on revenue of $1.06 billion
4:25 p.m. ET: Advanced Micro Devices (AMD) is expected to report adjusted earnings of 16 cents per share on revenue of $1.86 billion
4:30 p.m. ET: Denny’s (DENN) is expected to report an adjusted loss of 18 cents per share on revenue of $43.7 million
4:45 p.m. ET: Wyndham Hotels and Resorts (WH) is expected to report an adjusted loss of 5 cents per share on revenue of $255.7 million
5:25 p.m. ET: Avis Budget Car (CAR) is expected to report an adjusted loss of $6.24 per share on revenue of $703.5 million