Jason Writes “Companies that beat estimates are often punished by investors as quality of quarterly performance, forward guidance hold more sway“Investors are saying, ‘Forget about whether you beat earnings expectations last quarter,’” says James Bianco, president of Bianco Research LLC in Chicago. “‘What’s your outlook for next quarter, next year? What’s your guidance? That’s all we care about now.’”
Companies reporting higher earnings than expected have generated stock returns lower than the historical average over the preceding five years.
“The forward look is more dour than we’ve had in the recent past. “The underlying fundamentals are a little slower, and the market is adjusting by putting a lower multiple on late-cycle earnings”—in plain English, marking stock prices down.
Professional investors are also becoming less reliant on the earnings forecasts of the “sell-side” analysts who work for Wall Street’s banks and brokerage firms.
Hedge funds and other asset managers have been tapping into massive data sets—shipping statistics, website traffic, measures of how many shoppers visit stores, credit-card volumes and the like—that open real-time windows into business activity.
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