The S&P 500 Index is having its worst bout of earnings-season indecision in 16 years. Don’t look to chief executive officers to help cure it.
About the only thing with less precedent than the benchmark index’s six-day streak of alternating up-and-down moves since Alcoa Inc. reported results has been the refusal of companies this earnings season to say anything to help clarify their future. There were 20 instances of any kind of quarterly or annual profit guidance this month through Monday and 21 in September, roughly a third of the usual volume, according to data compiled by Bloomberg and Bank of America Corp. Last month’s total was the fewest on record.
While nobody’s saying the two trends are more than coincidence, a plausible common cause exists: uncertainty about the Federal Reserve and elections.
“Usually companies get conservative into elections and we saw that for a few months, but now it’s that companies don’t want to give guidance at all,” Jill Carey Hall, an equity strategist at the firm, said by phone. “Overall there has just been a lot of macroeconomic uncertainties, be it the overall lack of top-line growth in the economy that we’re seeing or companies not wanting to update their outlooks until after November.”
The S&P 500 added 0.7 percent to 2,141.54 by 1:34 p.m. in New York, as health-care, retailers and financial shares gained on the back of earnings that beat expectations. The rally extended the stretch of oscillations back to Oct. 6. The last time an earnings season started with six straight swings between daily gains and losses was in April 2000, data compiled by Bloomberg show.
It’s not all bad news. Companies are beating estimates for earnings in the July-September period at a rate that suggests they will break a five-quarter streak of declining profits. And when issuing projections, they’re not as dire as usual. The ratio of guidance exceeding expectations to those below is 0.8, according to Bank of America, above the long-term average of 0.6.
With 52 companies in the S&P 500 reporting earnings, profits are 6.6 percent higher than expected, according to data compiled by Bloomberg. Revenue beats remain muted, with results just 1.3 percent better than expected.
Yet stocks aren’t moving a ton.
Companies that have reported both higher sales and earnings than expected have beaten the S&P 500 by 0.7 percentage points on average the following day, and those that have missed have lagged by 2.7 percentage points. The spread between the winners and losers is narrower than average and smaller than the past three quarters, according to Bank of America.
U.S. stocks rose the most in two weeks Tuesday, amid corporate results and speculation that the economy is strong enough to cope with the gradual pace of monetary tightening indicated by policy makers.
UnitedHealth Group Inc. boosted its full-year profit forecast, sending its shares up the most in three years. Netflix Inc. surged 19 percent to a nine-month high after reporting a jump in subscribers. International Business Machines Corp. slipped the most since June after saying profit margins shrank for the fourth quarter in a row.
“We’ve been selling off for the better part of a week at this point, and earnings have been good enough to get us into this bounce,” said Michael Antonelli, an institutional equity sales trader and managing director at Robert W. Baird & Co. in Milwaukee. “There’s no real blow-ups yet. Seeing a big company like Netflix higher definitely helps sentiment.”
Earnings results today are being parsed for signs of corporate America’s vitality. Goldman Sachs Group Inc. advanced 2.2 percent after stronger bond-trading revenue propelled its better-than-estimated quarterly profit. Johnson & Johnson fell 2.6 percent to a three-month low, despite better-than-expected profits, as its blockbuster arthritis treatment Remicade will soon face increased competition. Analysts forecast a 1.4 percent contraction in third-quarter profits for S&P 500 members.
Investors are also looking for confirmation that growth is steady enough to bear higher borrowing costs. Data Tuesday indicated that the cost of living in the U.S. rose at the fastest pace in five months, a sign inflation is getting closer to the Federal Reserve’s target. A separate report showed confidence among homebuilders cooled in October from an 11-month high, reflecting a pause in the market for single-family houses.
Policy makers, who have held off on interest-rate increases since December, might find more reason to build a case for a hike before year’s end amid firming inflation and a still-strong labor market. The odds of a December move are about 64 percent, slipping from 66 percent yesterday, though up 10 percentage points from the end of last month.
While Fed Vice Chairman Stanley Fischer struck a hawkish note yesterday, saying he sees limits to how far the central bank can push to cut unemployment, Chair Janet Yellen has indicated that any interest-rate increases will be gradual, noting Oct. 14 that there are “plausible ways” that low borrowing costs could continue helping boost demand. Fischer didn’t comment on when he thought a hike should come, though he said the Fed was very close to meeting its goal of creating full employment with stable prices.
Tuesday’s gains trimmed the main U.S. equity benchmark’s third consecutive monthly decline, and its first October slide since 2012. The gauge closed Monday 2.9 percent from an all-time high reached in August, and it trades at 18 times forecast earnings, the highest since 2009.