The market is getting ‘more discriminating’ during earnings season

Wall Street is getting harsher on companies whose earnings come
in below analyst expectations.

This could be rewarding for active fund managers who seek out
stocks that may sell-off sharply if their results don’t match up
to their guidance or analysts’ expectations. 

“The market has become more discriminating during earnings
season, which is a positive for stock pickers,” said Chris
Harvey, a senior analyst at Wells Fargo, in a note on Sunday.
“This suggests that stock pickers may want to spend more time on
what they want to avoid or sell rather than what they would like
to overweight or buy.”

Shares of companies that miss on earnings are being sold more
aggressively: Screen Shot 2017 07 17 at 8.18.46 AMWells
Fargo

And over the last three years, the gap between the one-day
rallies and sell-offs after earnings has widened as companies
that miss are sold off more aggressively:



Screen Shot 2017 07 17 at 8.23.02 AM

Wells
Fargo

The stakes are as high as ever for second-quarter earnings, which
kicked off late last week. It’s especially important for
the tech and financial sectors to impress Wall Street,
having led the market’s climb to new highs and enriched various
gauges of its value.

Earnings beats are outperforming misses so far, according to
Wells Fargo. Shares of companies that beat have outperformed the
S&P 500 by 0.52%, while misses have underperformed by -1.81%.

JP
Morgan
, Citigroup,
and Wells
Fargo
 all fell on Friday despite beating earnings
expectations, reflecting some concern that after their
post-election surge may be followed by modest revenue
growth.

Netflix
on Monday will be the first big tech company that announces
second-quarter earnings.

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