Luke Sharrett/Bloomberg
Stocks have hit records in recent weeks despite a variety of headwinds. Now, the tailwinds of the nascent earnings season could be a catalyst for even more gains.
In the past month, the
has charged up 3% and hit several all-time highs, pushing through concerns about slowing economic growth after a surge in activity spurred by reopenings and trillions of dollars of fiscal stimulus.
Now, second-quarter earnings season is getting under way—and the companies that have already reported results have largely seen their shares rise. About 56% of the S&P 500 companies that have reported so far have seen their shares rise 1% or more the day after releasing earnings, according to RBC Capital Markets. The average stock price change of 16 companies RBC tracked has been up 0.71% after earnings.
Sure, one driver is that companies are beating estimates. Just over 90% of companies that have reported have beaten analysts’ earnings estimates.
But perhaps more important, companies have issued generally strong outlooks just when investors need it. Of 18 earnings reports RBC studied, six contained increased annual earnings guidance, while none contained a decrease in guidance. Companies have highlighted strong demand, RBC’s data show. Just last week, stocks saw bouts of selling as evidence surfaced that economic growth is peaking. Reassurance from management teams certainly isn’t hurting stocks thus far during earnings season.
Still, companies are mentioning that supply and labor shortages could put a ceiling on sales growth. Darden Restaurants (ticker: DRI), for example, said it is concerned about obtaining enough staff members to meet demand. But that hasn’t bothered investors, partly because management said it still expects to post sales at the higher end of its guided range. The stock is up about 7% since reporting earnings.
It’s still early in earnings season. Keep tracking the results.
Write to Jacob Sonenshine at jacob.sonenshine@barrons.com
