By Michael Wursthorn
Earnings are making their biggest splash in the stock market in
Investors are sharply bidding up the shares of companies that
beat expectations -- and appear more willing to overlook some of
the misses -- helping to pull the stock market out of its recent
lull. The S&P 500 set three record closes last week, its first
new highs since July.
Shares of companies that topped forecasts rose an average of 2%
in the two days after reporting results, beating the five-year
average of 1%, according to data compiled by FactSet. Those that
fell short have averaged a 2.1% pullback, below the half-decade
average of 2.6%.
So far, the winners are outpacing the losers. More than
three-quarters of the 358 companies in the index that reported
through Friday have beaten estimates. And 66% have risen in
subsequent trading sessions, a five-year high.
Industrial equipment maker Fastenal Co., motorcycle maker
Harley-Davidson Inc. and chip maker Intel Corp. are among the
companies that have topped estimates and enjoyed a subsequent rally
in their shares. Shares of several companies that missed forecasts,
including retailers like Kohl's Corp. and Dollar General Corp.,
The big crowd of winners has helped widen the breath of the
stock market's rally. Technology stocks have continued to drive
most of the recent gains, according to S&P Dow Jones Indices,
but the contributions of industrial stocks, financials and
health-care companies have increased as well.
The S&P 500 has risen 4.3% over the past month, extending
its gains for the year to 22%. The index's advance-decline line, a
barometer of its breadth that measures the net companies rising
each day since the start of the year, climbed steadily in October,
signaling solid participation among the sectors in the index.
"We're seeing little rallies in some of the growth segments and
other parts of the market," said James Ragan, D.A. Davidson's
director of wealth-management research. "Expectations were low for
some of the sectors exposed to the overall economy and trade. Some
of those fears have really subsided, creating a good quarter."
The upbeat reactions are due in large part to investors getting
a more positive picture of corporate America's health than that
painted by analysts in the months leading up to
Meanwhile, other sources of investor concern, including
U.S.-China trade tensions, the U.K.'s long-running divorce from the
European Union and the possibility of a recession, have eased.
Also, last week, the Federal Reserve cut interest rates for the
third time this year and signaled it intended to keep rates low for
the foreseeable future.
"Investors are feeling pretty good and better than they did just
a few months ago," Mark Stoeckle, chief executive and senior
portfolio manager of Adams Funds, said. "Trade isn't likely to get
worse in the near term, the Fed just lowered rates and, on balance,
earnings are pretty good. The market is almost calling a bottom on
some of this."
Mr. Stoeckle said his equity fund used the glut of
stronger-than-expected earnings and improved macroeconomic backdrop
to buy more shares of companies it already owns. Microsoft Corp.,
Facebook Inc. and Lam Research Corp. are among the holdings of Mr.
Stoeckle's equity fund.
Several stocks in the materials sector that usually attract
little fanfare, such as Sherwin-Williams Co., are also among Mr.
Stoeckle's strongest performers.
"Investors don't spend a lot of time there," Mr. Stoeckle said.
"But we've made a lot of money in materials."
More than 80 companies in the S&P 500 are scheduled to
report earnings this week and analysts don't expect the pace of
beats to slow. But whether stocks can continue to capitalize
largely depends on how the U.S. and China proceed with trade
negotiations and whether data continue to suggest the U.S. economy
is on solid footing.
Two important pieces of economic data are due this week:
October's gauge of the U.S. services sector Tuesday, followed by
November's consumer-sentiment survey Friday.
Any signs of cracks on trade or the economy could derail gains
among stocks, especially those most exposed to U.S.-China trade
tensions and the global economy, analysts said. On Thursday, for
example, the S&P 500 fell 0.3%, pulling back from the previous
day's record, after a report said Chinese officials doubted they
could reach a trade deal with President Trump.
Those developments dulled a rally in shares of Facebook and
Starbucks Corp. after the two reported solid earnings a day
earlier. Facebook rose just 1.8% despite opening up more than 4%,
while shares of Starbucks ended the day up 0.4% after rising 3.6%
earlier in the session.
"Investors are still underestimating the negativity on trade,"
said Ron Temple, head of U.S. equities and co-head of multiasset
investing at Lazard Asset Management. "Stocks can move quickly on
The absence of any major geopolitical flare-ups over the past
several weeks contributed to the gains several companies scored
Shares of Fastenal, for example, jumped 17% on Oct. 11, their
biggest gain in a single trading session in 32 years, after the
maker of industrial equipment surprised analysts and investors with
stronger-than-expected earnings. Although the manufacturer has been
coping with tariffs for more than a year, shares are now up 40% in
2019, with nearly half of that gain coming in the past month.
Harley-Davidson rose 8% on Oct. 22 after the motorcycle maker
topped earnings forecasts, its strongest advance in about three
years, despite revenue and earnings weakening from a year earlier.
The company has shifted some of its production to dull the impact
of tariffs and shares are up 14% for the year.
"When you have a concern about where growth is going to come
from or uncertainty out there regarding trade, investors like when
these companies beat results," said Mr. Ragan.
Write to Michael Wursthorn at Michael.Wursthorn@wsj.com
(END) Dow Jones Newswires
November 03, 2019 15:34 ET (20:34 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
Graphique Historique de l'Action
De Juil 2020 à Août 2020
Graphique Historique de l'Action
De Août 2019 à Août 2020