(Jan 21): S&P 500 companies are handily beating earnings estimates, yet unimpressed investors are delivering the worst share-price reactions on record as the outlook for 2026 turns murky.
While it’s still early days, data compiled by Bloomberg Intelligence show about 81% of S&P 500 firms have beaten fourth-quarter profit expectations so far. However, their shares have trailed the benchmark by an average of 1.1 percentage points — the worst relative performance across data going back to 2017.
Among the stocks that underwhelmed, 3M Co’s shares fell 7% on Tuesday (Jan 20) even as the company topped profit estimates, with investors focusing instead on a glum forecast. State Street Corp dropped 6.1% as a dimmer net interest income outlook overshadowed better-than-expected quarterly results. Netflix Inc also declined about 6% in premarket trading Wednesday after a disappointing outlook.
The trend emphasises just how high the stakes are for corporate earnings this quarter as US stocks kicked off the year scaling record highs. That’s lifted valuations above long-term averages just as analysts have been cutting profit estimates ahead of the reporting season.
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“Beating consensus isn’t the hurdle right now. The hurdle is raising the forward path enough to justify already rich valuations in a market that’s still sensitive to rates and policy uncertainty,” said Aneeka Gupta, macroeconomic research director at WisdomTree. “In that environment, a beat without strong guidance becomes a ‘sell-the-news’ event.”
Investors are turning even more discerning as US President Donald Trump fuels worries about a trade war again with threats to impose new tariffs on European countries. His remarks sparked a selloff across global equity markets this week and put the spotlight back on the outlook for economic growth.
While market forecasters have largely said corporate earnings should remain resilient for now, investors will be closely watching C-suite commentary for clues on the health of the consumer. Signs of weaker demand would likely be poorly received with the S&P 500 trading at about 22 times forward earnings, above a 10-year average of 19.
Companies that missed estimates this quarter underperformed the S&P 500 by an average of 3 percentage points on the day of reporting, BI data show.
At Edmond de Rothschild, group head of investment private banking Nicolas Bickel cautioned it was still too early to draw definitive conclusions from the price reactions as only 9% of the companies that make up the S&P 500’s market capitalisation have reported.
“Despite this volatile start to the quarterly earnings season, we remain constructive on the US markets,” Bickel said. “Fundamentals could take over from geopolitical ‘noise’ between now and the end of the season.”
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Still, a Citigroup Inc index indicated more analysts have downgraded profit forecasts ahead of fourth-quarter results. While that sets the stage for another quarter of strong beats, it also means companies will have to top both sales and earnings estimates to impress, Morgan Stanley strategist Michael Wilson said.
“Reporting season is likely more of an idiosyncratic event and less of a major index driver,” Wilson wrote in a note.
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