Stocks are getting punished more than usual for missing Wall Street’s expectations on Q2 earnings reports.
With more than two-thirds of S&P 500 (^GSPC) companies done reporting, companies that miss Wall Street’s estimates for earnings per share and sales have seen an average one-day decline of 7.4%, per Julian Emanuel, who leads the equity, derivatives, and quantitative strategy team at Evercore ISI. This far exceeds the typical drop over the past five years of 3.2%.
Stocks that beat one of Wall Street’s estimates while missing on another are also seeing their stocks fall more than average. That means on average, the only companies posting a positive stock reaction the trading session following financial releases are those that top estimates for both sales and earnings per share.
With the market trading near record highs, Emanuel noted investors are “agitated by anything short of perfect” this corporate earnings season.
After a 30% rally since the S&P’s April lows, market participants had been wary that these kinds of market reactions could be the norm during the second quarter earnings season.
“I expect that we’re going to be seeing a lot of volatility,” Brian Jacobsen, chief economist at Annex Wealth Management, told Yahoo Finance on July 18. “Earnings misses are going to get punished a lot more than usual. I don’t think investors have the patience to really deal with companies that are missing any of those estimates.”
That has certainly played out, with Novo Nordisk’s (NVO) more than 20% dive following weaker-than-expected sales and Super Micro Computer’s (SMCI) nearly 20% decline for the same reason serving as recent prime examples.
But it hasn’t just been companies with disappointing outlooks that have seen their stocks fall this reporting period. There’s been a slew of companies where good results just haven’t been good enough.
This theme was on display on Wednesday, with AMD (AMD) stock falling more than 6% after reporting second quarter data center segment revenue that matched Wall Street’s expectations. The same reaction came for Uber (UBER), which slid more than 1% despite topping the Street’s sales expectations and launching a $20 billion buyback.
While the flow of earnings reports will slow over the next few weeks, investors are still waiting for one main event at the end of August, with Nvidia (NVDA) slated to report earnings on Aug. 27. And one Wall Street analyst is already warning that Nvidia’s more than 85% rally since the April bottom could put a cap on potential upside for the stock following what’s expected to be another strong quarter from the AI chip leader.
Read more: Live coverage of corporate earnings
BofA Securities analyst Vivek Arya, who maintains a Buy rating and $220 price target on the company, wrote in a note to clients on Monday that Nvidia stock could see near-term “volatility” around the release given the pre-earnings run for shares.
Correction: An earlier version of this story said Nvidia will report earnings on Aug. 26. That report is set for release on Aug. 27.
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
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