Sorry, investors. Earnings ‘beats’ no longer move the markets

Good morning. After Monday’s steep sell-off, U.S. futures are bouncing back as the clock ticks down on stimulus talks. European stocks, meanwhile, are mostly in the green, buoyed by decent bank earnings. Paradoxically, the revered “beat” just isn’t impressing investors any more. I’ll explain more on that below.

But first, let’s see what’s moving the markets.

Markets update


  • The major Asia indexes are mostly lower in afternoon trading with Japan’s Nikkei down nearly 0.5%.
  • Foxconn Technology Group has thrown into doubt the future of its much-ballyhooed Wisconsin mega factory. Founder Terry Gou says the whole project hinges on getting more state aid out of Wisconsin.
  • Apple is seeing strong demand for its new iPhone 12 models, according to data leaked to CNBC.


  • The European bourses are rebounding after a weak start with the Europe Stoxx 600 up 0.2% in mid-morning trade as investors weigh the impact of tighter COVID restrictions across the continent and upbeat earnings news.
  • Shares in UBS were up 2.7% in early trading after the Swiss banking giant delivered a big bottom-line beat this morning. It was the last analyst call for outgoing CEO Sergio Ermotti, one of the longest tenured of Europe’s bank bosses. He made good on his vow to go out with a bang. I interviewed Ermotti for a magazine piece last month. He has a fascinating turn-around story to tell.
  • Economists are running the numbers on the increasingly likely scenario of a no-deal Brexit. It would hit Britain hard, but so too would it dent the GDP of trading partners Ireland, the Netherlands and Belgium.


  • Dow and S&P futures have been climbing all morning. That’s after all three exchanges faltered in afternoon trading on Monday, extending the Nasdaq’s losing streak to five straight days. The Dow and S&P 500 have closed in the red four of those five days.
  • Will they or won’t they? That’s the big question hanging over the markets as a big deadline looms around stimulus talks. Even if Nancy Pelosi and Steven Mnuchin reach an agreement—a Washington Monument-sized if—the hard part is getting it through the Senate.
  • What else is on tap for today? Netflix reports its Q3 results and there will be a fresh batch of housing data before the bell.


  • Gold is down, trading around $1,900/ounce.
  • The dollar is up.
  • Crude is down, with Brent trading below $42.50/barrel.


Beat it

What do blue chips Halliburton and IBM have in common?

They both reported impressive earnings “beats” yesterday only to see shares, gulp, fall.

There was a time when a top- and/or bottom-line beat would send shares soaring. As CEOs are finding, that’s no longer a guarantee.

“While it is too early to draw any conclusions, there have been no rewards for beats at all so far this earnings season,” BofA equities analysts wrote in an investor note yesterday. “Companies beating on both top and bottom lines underperformed the S&P 500 by 0.8ppt the day after (-0.7ppt ex-Financials).”

This phenomenon isn’t some fluke of the COVID era. It’s part of a trend that BofA says goes back at least the past six quarters.

Now, it’s important to note that it’s still far better for a company to report a beat than a miss, as this BofA chart shows.

A company that misses on both profits and sales will see, on average, shares underperform the S&P 500 by 1.5% in the first full trading session, and see even more a lag over the first five trading days. (See blue shaded line at the bottom of the chart). A dual sales/profits beat, meanwhile, translates to an underperformance of 0.8% and 1.3% over the same periods. (See penultimate blue-shaded line in chart above.)

What’s frustrating to CEOs, no doubt, is that there’s not really much of an explanation beyond this being the new normal of the markets. The earnings calendar just isn’t the catalyst it once was.

And you wonder why so many chief executives would prefer to ditch the quarterly-reporting slog and simply go to twice yearly reports?


Have a nice day, everyone. I’ll see you here tomorrow. 

Bernhard Warner

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