(Bloomberg) -- Companies in the S&P 500 are beating earnings estimates at the lowest rate in nearly two years, a trend that could point to declines for the US stocks benchmark.
Nearly a third of the way through the reporting season, about 75% of firms have posted profits for July to September that exceeded analysts’ expectations, according to data compiled by Bloomberg Intelligence. That’s the weakest showing since the fourth quarter of 2022 and comes even as estimates were lowered ahead of the season.
“The early S&P 500 stats are now pointing to a mildly disappointing reporting season so far,” said Lori Calvasina, a strategist at RBC Capital Markets LLC. Given peak investor optimism ahead of the season, “we remain on guard for another short-term pullback in US equities,” she wrote in a note.
This week is the busiest for company reports. Investors are awaiting results from firms accounting for nearly 42% of the S&P 500’s market capitalization, including from Microsoft Corp., Starbucks Corp. and Meta Platforms Inc.
US stocks have staged another furious rally this year, with the benchmark index set for a sixth straight month of gains, on optimism around resilient economic growth and lower interest rates. Still, investors remain alert for signs of a slowdown in consumer demand, which could dent corporate earnings next year.
Skepticism is also growing around the payoff from heavy investments into artificial intelligence. Earnings growth at the technology heavyweights is projected to have slowed sharply in the third quarter from the previous three months.
RBC’s Calvasina said company executives had issued a mixed outlook on the economy and business conditions so far this season.
And the response to strong earnings reports in the market has been muted in recent days. Up until early last week, companies posting better-than-expected earnings were rewarded with a median outperformance of 1.7% for their shares, the highest in at least five years. As of Oct. 25, that rate had dropped to 1.3%.
There’s scope for “excitement and drama” in this week’s crop of reports, said John Stoltzfus, chief investment strategist at Oppenheimer Asset Management.
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