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Many companies are beating expectations this earnings season, helping push major indexes to record levels. But for firms that miss, the punishment has been more severe than usual.
That means the stakes are high during a busy earnings week in which
nearly 150 companies in the S&P 500 are reporting results.
On average this earnings season, shares of companies whose
results have fallen short of analysts’ estimates have declined 3.5% from
two trading days ahead of earnings to two sessions after the reports, FactSet data through Tuesday morning showed. That’s more than the 2.5% average decline over the past five years.
A possible cause for the underperformance is that companies have been
giving guidance either in line with or below analysts' expectations,
according to Bank of America Merrill Lynch. BAML analysts say mentions
of “better” or “stronger” versus “worse” or “weaker” are tracking at
their lowest since the first quarter of 2016.
On Monday, Intuitive Surgical stock tumbled 7%, its largest decrease
since 2014, after the maker of robotic systems used in surgery reported a
slightly smaller-than-expected increase in quarterly sales and missed
profit estimates. Last week, Bank of New York Mellon’s shares fell
nearly 10% after it reported earnings and revenue short of Wall Street’s
expectations. Earlier this month, Walgreens Boots Alliance’s shares lost 13% after the pharmacy chain also missed on both sales and earnings estimates.
In its earnings call with analysts, BNY Mellon’s chief executive
Charles Scharf referenced “weakness in investment management and net
interest income” as a reason for the custody bank's performance during
On Wednesday, 40 S&P companies are slated to report,
including social-media behemoth Facebook and tech titan Microsoft. On
Thursday, 65 more quarterly reports will arrive, including from Intel
and Amazon.com as well as coffee chain Starbucks.
Stocks are coming off an impressive run,
with the S&P 500 up 17% in 2019. This rise has come despite a
potential first-quarter-earnings slowdown, due to worries about the
potential impact of rising wage and commodity costs and a stronger
Prior to the start of earnings season, analysts had estimated that
S&P 500 profits in the first quarter would contract 4% from a year
earlier. That could be good news for stock prices though, as lowered
expectations make it easier for companies to beat them. Through Tuesday
morning, nearly 80% of S&P 500 companies that had reported earnings
had surpassed analyst estimates.
The Cboe Volatility Index, or VIX, is down 10% this month, on track to fall for four straight months. That would mark its longest losing streak since 2014, according to Dow Jones Market Data.
Hasbro shares surged 14% on Tuesday, their biggest pecentage gain since January 1996, after the toy maker reported higher first-quarter sales.
On this day in 1968, IPO mania was in full fury as National Student
Marketing went public. The company, which signed up undergrads to flog
vinyl LPs, employment guides, posters and other schlock on college
campuses nationwide, was a huge hit. Offered at $6 a share, the stock
surged 133% to close the first day at $14, or roughly 100 times
earnings. Within two years, Cort Randell, the company founder, was on
his way to jail for stock fraud, and the stock traded below $1 a share.
U.S. Treasury Secretary Steven Mnuchin participates in a moderated discussion on fintech and the future of banking at 9 a.m. ET.
The Bank of Canada releases its rate announcement and monetary policy report at 10 a.m.
U.S. crude-oil inventories will be released at 10:30
a.m. Stockpiles are expected to have advanced by 400,000 barrels last
week, according to the average target of 11 analysts and traders
surveyed by the Journal.
Deutsche Bank’s Supervisory Board Chairman Paul Achleitner at the
bank's annual meeting in Frankfurt, Germany, on May 24, 2018. PHOTO: KAI
Deutsche Bank is considering forming a “bad bank.” Executives have discussed creating a new unit to house unwanted assets and businesses that could be earmarked for closure, as part of contingency planning should merger talks with Commerzbank fall through.
SoftBank will invest $1 billion in payments firm Wirecard. Japan’s SoftBank Group plans to invest about $1 billion in Wirecard, forging a partnership that allows SoftBank to take a minority stake in the German payments company. Meanwhile, SoftBank founder Masayoshi Son lost $130 million on bitcoin.
An AIG offshoot is riding the Chinese insurance boom. Once the crown jewel of American International Group, pan-Asian life insurer AIA has eclipsed its former parent thanks to soaring demand from China’s middle class.
Bad news for landlords: More states are pursuing rent control. Big apartment owners are forecast to post strong earnings when they start reporting this week, but a number of state-sponsored rent-control measures are starting to raise longer-term concerns.
The Federal Reserve is easing restrictions for bank investors. The Fed moved to make it easier for private-equity funds and other investors to own large stakes in banks without triggering its oversight, in a plan that could also make it easier for financial technology startups to obtain investment cash.
Auditions for Morgan Stanley’s no. 2 job started with a wealth-management and banking shuffle. A change atop Morgan Stanley’s giant retail brokerage holds clues for the race
to succeed Chief Executive James Gorman and shows the firm leaning
toward the type of plain-vanilla banking activities it once avoided.
A big bitcoin exchange ended its bid to lure high-speed traders. Coinbase laid off about 30 people in its Chicago office who had been working to improve the company’s technology to cater to speedy traders.
What We've Heard on the Street
“Investors who bet on the rapid growth of electric vehicles in China are getting a shock.”
CBS: The company said late Tuesday that it suspended
its search for a new chief executive, extending the employment of
acting CBS Chief Executive Joe Ianniello through the end of the year.
Snap: The Snapchat parent reported rising daily users
and accelerated revenue growth, signs that a tumultuous redesign of the
company’s core app last year is translating into business gains.
EBay: The e-commerce giant raised its sales and profit outlook after posting stronger-than-expected results in its first quarter.
TD Ameritrade: The company said investors pulled back on trading in the latest quarter, worried about the market decline in December and the strength of the global economy.
Texas Instruments: The
chip maker's first-quarter profit beat analysts' estimates and the
company delivered a better-than-expected sales outlook for the current
Rite Aid: The
drugstore chain will raise the minimum age to buy tobacco products to
21 within the next 90 days, the company said late Tuesday. The move came
after rival Walgreens Boots Alliance also said this week that it would raise the minimum age in its stores to 21, beginning Sept. 1.