Investors to Corporate America: Meh.
U.S. companies are reporting strong profits for the fourth quarter of last year. But most are failing to impress investors who were hoping for even better numbers or rosier outlooks, and are too worried about larger global macroeconomic forces to do much buying.
"Earnings season is going quite well," says Christine Short, a senior manager at the research firm S&P Capital IQ. "But what we're seeing in earnings season is not what we are seeing in the market."
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With results in from half of the companies in the S&P 500 index, fourth-quarter earnings are up a respectable 7.3 percent, making it the best quarter of last year, according to S&P Capital IQ. Of the 250 companies that have reported results, 172 companies have beaten earnings expectations and 51 have fallen short, a better ratio than average. Company revenues have also come in better than in the past relative to expectations.
Traders on the floor of the New York Stock ExchangeJin Lee | Bloomberg | Getty Images
It's just not enough for investors. The S&P 500 fell 41 points Monday, or 2.3 percent, and is down 5.2 percent since earnings season kicked off on Jan. 9.
Stocks rose almost unchecked in 2013, posting their highest gains since 1997. Because stock prices rose so high, that has investors on alert for any bad news. The slowdown of stimulus from the Federal Reserve, currency problems in emerging markets such as Argentina and Turkey and slowing growth in China have served to ratchet up the worry.
Stocks fell Monday after a manufacturing survey showed weaker factory activity growth than expected and the Commerce Department reported that construction spending rose only modestly in December, slowing from more robust gains a month earlier.
"The market has the jitters," says Quincy Krosby, market strategist at Fidelity Investments.
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So, when companies share financial news that is less than terrific—revenue or earnings that are a little weak, or outlooks that are cautious or even slightly negative—shares get hammered.
Randy Frederick, an investment strategist at Charles Schwab, points out that the results for the last quarter so far are strikingly similar to those posted over the previous few quarters, but stocks are going down instead of up.
"The quarter is the same, but the market reaction to it is different this time," he says.
Amazon posted for the fourth quarter after the market closed on Thursday, but it failed to meet analysts' expectations. It predicted revenue of $18.2 billion to $19.9 billion for the first quarter—not strong enough for analysts who all had forecast $19 billion or higher, according to FactSet. Shares are down 14 percent since Friday morning.
