Investors are impatient, they want big earnings

investmentnews.com:

It’s taking bumper corporate earnings and profit forecasts to impress investors this season, after a record first-quarter rally left stocks looking expensive.

S&P 500 firms are more than halfway through the reporting period and 79% of them have beaten profit expectations, according to data compiled by Bloomberg Intelligence. Yet, the median stock outperformed the index by less than 0.1% on results day — the smallest margin since late 2020.

And firms missing expectations are suffering the worst punishment in the data’s records going back to 2019, lagging the S&P 500 Index by a median of 3.7%. 

Examples abound. On Wednesday, shares in Norwegian Cruise Line Holdings Ltd. sank 15% despite a forecast-beating result and improved profit outlook. The reason? High expectations fueled by a rival cruise liner’s result. The same day, electricals firm Eaton Corp. dropped as investors gave a thumbs down to its forecast-topping earnings.

The malaise hasn’t spared Europe either. Novo Nordisk A/S, which makes the weight-loss drug Wegovy, slipped even as it raised its profit outlook.

The main reason, many reckon, is the S&P 500’s 28% rally from its October lows through end-March, which raised expectations of strong profits. Markets were also at the time betting on multiple interest-rate cuts from the Federal Reserve, a tailwind that’s now all but disappeared.

A price-to-earnings ratio of over 20 had left the index “nearly priced to perfection,” said Michael O’Rourke, chief market strategist at JonesTrading. “Therefore when a company disappoints, prices are likely to readjust sharply lower.” A resilient US economy also makes “it hard to have confidence in the outlook of a company that has stumbled.”

US stocks have faltered after hitting a