Earnings Losers Are Market’s Biggest Winners
Stock prices have become divorced from profit forecasts.
Energy investors aren’t sweating earnings.
Photographer: Loren Elliott/AFP/Getty Images
Chief executive officers are going out of their way to brace investors for what could be the worst first quarter in years. As of the end of last week, more than 20 percent of the companies in the S&P 500 had pre-announced details of how they did in the first three months, and nearly 80 percent of them told investors to lower their expectations. But top executives can breathe a sign of relief. It appears investors aren’t all that bothered by potentially lousy earnings.
Consider energy stocks. The sector has recorded the largest decrease in expected earnings growth of any sector in the S&P 500, according to FactSet Research. At the start of the year, analysts had expected energy companies’ quarterly profits to increase an average of 16.2 percent compared with a year earlier. Not anymore. They now expect the bottom lines of those same companies to tumble 20 percent. That huge swing in expectations, though, doesn’t seem to have put off investors. Energy stocks are up almost 19 percent since the beginning of the year, making them the third-best-performing sector in the S&P 500.