Earnings season leaves bulls unimpressed

THE MARKET HAS BEEN SLOW TO REWARD COMPANIES

An April that many investors hoped would end two months of indecision in the stock market is not quite living up to billing.

While benchmark indexes eked out another week of gains, frustration was the rule below the surface. Reactions to earnings results are muted — the average stock is flat the day after reporting. Megacap tech companies are soaring, but makers of semiconductors and household goods have stumbled.

It’s not that companies aren’t beating estimates. Most are, by the widest margins in years. It’s that the market has been slow to reward them — and quick to punish those that fall short.

“As we get further into the bull market cycle, US companies have to try harder and harder to make investors happy, and that’s tough,” said Frank Ingarra, the head trader at NorthCoast Asset Management LLC. “Investors set their bars really high.”

Earnings season was supposed to clear the decks, be a respite from concerns that drove stocks down in February and March. But now investors are noticing interest rates again, with the 10-year Treasury yield again approaching 3 per cent. Surging prices in metals are reviving inflation anxiety.

Advance erased

For the week, the S&P 500 rose the first three days then fell the last two, erasing its advance for the year on Friday. It climbed 0.5 per cent wire-to-wire, turning lower after closing above 2,700 on Tuesday and Wednesday. The Dow Jones Industrial Average gained 0.4 per cent over the week while the Nasdaq 100 Index advanced 0.6 per cent.

Why haven’t stocks done better? The reason could have more to do with the estimates than the results. Maybe companies are beating forecasts that simply failed to model the impact of the president’s tax overhaul.

The lacklustre returns can’t help but buttress concern that much of the good news about tax cuts and economic growth is already reflected in stock prices.