Now that we’ve gotten through the opening stage of the earnings show, it’s safe to say that this has been like no other due to the far gap between expectations and reality. Not analyst expectations, but investor expectations instead.
Most people believed that this would be a bloodbath, like we discussed last week. These expectations were coming to reality with the financial sector’s earnings, but things have changed since. Earnings results have been the same, no question, with a few exceptions here and there, but reactions are completely different. In a big-picture perspective, the markets rose by almost 2.5% last week, and it is up by 5 percent this month after half a year of red. Tesla broke its streak of quarterly profits and warned of supply chain problems, yet it rose by almost 10 percent the next day. Netflix gained after losing subscribers for a consecutive quarter and only the second time in history, and there are many more examples. The important fact to collect from all of this is that those companies beat expectations: Tesla had greater than expected profit, and Netflix lost less subscribers than expected. This is a common case of overreaction in the stock market, with analysts and investors expecting significant declines in earnings due to the state of the economy. Instead, there was a decent decrease, which made investors very happy. Many have gotten solid gains in their portfolio, but investors will shift their expectations for the rest of earnings season, so the next few weeks might show us some different results in the market.
I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.