To The Moon

US companies endure record knock for missing earnings forecasts.

Groups that disappointed on both profit and sales have underperformed the market by almost 7%.

Overall, 85% of the companies in the S&P 500 have reported actual results for Q3 2022 to date. Of these companies, 70% have reported actual EPS above estimates, which is below the 5-year average of 77% and below the 10-year average of 73%. In aggregate, companies are reporting earnings that are 1.9% above estimates, which is well below the 5-year average of 8.7% and well below the 10-year average of 6.5%.

During the past week, positive earnings surprises reported by companies in multiple sectors (led by the Health Care and Energy sectors) were mostly offset by negative earnings surprises reported by companies in the Financials, Communication Services, and Consumer Discretionary sectors, resulting in a small increase in the earnings growth rate for the index during this period. Since September 30, negative earnings surprises reported by companies in the Financials, Communication Services, and Industrials sectors have been partially offset by positive earnings surprises reported by companies in the Energy and Health Care sectors, resulting in an overall decrease in the earnings growth rate for the index during this period.

During the upcoming week, 30 S&P 500 companies (including one Dow 30 component) are scheduled to report results for the third quarter.

US companies that missed already low Wall Street earnings expectations in the third-quarter reporting season have been punished more severely than any time since at least the turn of the millennium.

Groups that revealed sales and profits that were weaker than analysts had anticipated underperformed the blue-chip $S&P 500(.SPX)$ by 6.7% in the day following the release of their figures, according to Bank of America. It said the decline was the largest on record and much sharper than the average fall in previous years of 2.4%.

“Companies that miss always underperform, but the misses gave a signal that the floor wasn’t lowered far enough,” said Parag Thatte, US equities strategist at Deutsche Bank.

Ohsung Kwon, US equity strategist at BofA, echoed that sentiment, noting that earnings per share estimates had been slashed 7% in the run-up to earnings season, compared with the norm of about 4%

Big technology companies have had a particularly bruising earnings season after several of the most high profile players issued downbeat outlooks as they contended with rising concerns over a potential economic slowdown, rapid inflation and soaring borrowing costs. $Apple(AAPL)$ , $Microsoft(MSFT)$ , $Alphabet(GOOGL)$ parent $Alphabet(GOOG)$ , $Amazon.com(AMZN)$ and $Meta Platforms, Inc.(META)$ have shed $770bn in market value collectively since earnings season began three weeks ago.

Microsoft’s share price the day after it released earnings results in October. Sentiment has become gloomy for companies listed on the$S&P 500(.SPX)$

“This earnings season has shown that growth stocks are nBofA ot immune from the downturn,”said Kwon.

In contrast, banking giants$Goldman Sachs(GS)$ and $Bank of America Corp(BOAPL)$ posted better than expected profits, and $Netflix(NFLX)$ ’s share price jumped 13% after publishing positive results. But rewards for companies that beat expectations have been more muted than the punishments for companies that missed, outperforming the $S&P 500(.SPX)$ by 1.3%, compared with the historical average of 1.5%.

Overall, companies listed on the S&P 500 index have revealed year-on-year earnings per share growth of 2.1%, according to FactSet data based on groups that have already reported and estimates for those that have not. That would mark the slowest pace of profit growth in two years, when companies were still reeling from the effects of pandemic-induced lockdowns.

FactSet senior earnings analyst John Butters said earnings have been “weaker than we typically see — 71%of companies are beating estimates, and on face value that looks good, but it’s below the 5 and 10-year averages of 77% and 73%.”