The Markets

Singing the earnings song…

Each year, in January, April, July, and October, most publicly-traded companies announce their corporate earnings results. These announcements can have a dramatic effect on companies’ share prices – and markets – especially when companies don’t meet analysts’ expectations. 

The way a company’s share price moves after an earnings announcement can strike a discordant note. For instance, a company can have a great quarter, but if it earns a few pennies per share less than expected, its share price may tumble. Likewise, a company can be in dire straits, but if it produces a few cents more than expected, its share price may climb. 

Last week’s earnings song was a bit melancholy. By the end of the week, about one-fifth of the companies in the Standard & Poor’s 500 Index had submitted their reports and earnings were on track to grow by about 1.5 percent year-to-year. That’s a bit lower than the 4.1 percent earnings growth analysts had expected, but it was in positive territory. 

Unfortunately, as The Wall Street Journal pointed out, financial companies have exceptionally easy year-to-year comparisons. When they were pulled out of the mix, earnings hit a low note: down by almost 3 percent from last year, according to FactSet. That’s worse than analysts expected at the start of the quarter. 

Earnings were weak relative to expectations, but the S&P 500 still finished higher for the week.  That may be because of the soothing refrain offered by Ben Bernanke (monetary policy will remain accommodative… monetary policy will remain accommodative). The important thing to remember is the Fed’s definition of accommodative monetary policy doesn’t necessarily mean maintaining its quantitative easing program.