Wall Street's Cold Shoulder: Q3 Earnings Winners Underperform S&P 500

The market’s reaction to early corporate earnings this quarter has been unusual, revealing an interesting disconnect between financial performance and investor response. 

Traditionally, when companies exceed earnings-per-share expectations, their stock prices tend to rise. Yet, this earnings cycle tells a different story. 

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Firms that beat analyst forecasts are, on average, losing value compared to the broader market. 

Kevin Gordon, senior investment strategist for Charles Schwab & Co, highlighted this subtle but significant shift in market psychology. 

“So far this earnings season, for companies beating on EPS, they’re underperforming the S&P 500 by 0.35% after reporting results … that is the worst spread since the fourth quarter of 2020,” Gordon wrote in a post on X. 

The 0.35% underperformance relative to the S&P 500 suggests that beating expectations no longer guarantees post-report stock gains.

Examples include Blackstone, Inc. (NYSE:BX), which fell Thursday after beating on the top and bottom lines, and Coca-Cola Co. (NYSE:KO, )) which faded on Wednesday after reporting a strong double-beat. 

‘Thanks, but No Thanks’ 

Several factors may explain this counterintuitive reaction. 

Expectations heading into this earnings season were already elevated and investors may have “priced in” strong results ahead of time. When good news becomes the norm, even companies that deliver solid numbers can be met with investor indifference or mild profit-taking.

Broader macroeconomic concerns continue to weigh on sentiment and softer guidance for the fourth quarter has introduced a layer of caution. 

Investors may be rotating out of equities, especially in sectors that look fully valued, even when individual firms perform well. 

The disconnect between EPS beats and stock performance points to a maturing phase of the market cycle. Solid earnings are no longer sufficient to spark rallies — investors want proof of sustained growth in an increasingly uncertain environment. 

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Photo: Image created using artificial intelligence via Midjourney.