Profits Are Beating a High Bar and Traders Still Aren’t Enthused

About 85% of S&P 500 companies have beaten profit estimates, the highest proportion in five years, yet the median stock has failed to outperform the benchmark on the day after results, according to Bloomberg Intelligence data. In Europe, shares delivering only modestly better-than-expected earnings have gone unrewarded, while misses are being punished with an above-average 4.7 percentage point underperformance, Morgan Stanley figures show. The muted market reaction reflects high expectations after a stellar first-quarter earnings season and investor concerns about AI spending and economic growth, said Karen Georges, an equity fund manager at Ecofi in Paris.

Bloomberg -- Corporate earnings strong enough to beat the highest expectations in years have failed to impress investors fretting about AI spending and economic growth. Most Read from Bloomberg - Retina Chip Designed to Restore Sight to Go on Sale in Europe https://www.bloomberg.com/news/articles/2026-07-22/retina-chip-designed-to-restore-sight-to-go-on-sale-in-europe?utm campaign=bn&utm medium=distro&utm source=yahooUS - Hegseth Turns to UNC, Virginia Tech After Dropping Ivy League https://www.bloomberg.com/news/articles/2026-07-22/hegseth-turns-to-unc-virginia-tech-after-dropping-ivy-league?utm campaign=bn&utm medium=distro&utm source=yahooUS - Apple Plans Overhaul of MacBooks, iMac in Push to Meet AI Demand https://www.bloomberg.com/news/articles/2026-07-22/apple-to-launch-new-macbook-air-imac-macbook-pro-neo-mac-mini-mac-studio?utm campaign=bn&utm medium=distro&utm source=yahooUS - Alphabet Falls as $205 Billion Spending Plan Fuels AI Cost Fear https://www.bloomberg.com/news/articles/2026-07-22/alphabet-posts-cloud-sales-beat-slight-miss-on-search-revenue?utm campaign=bn&utm medium=distro&utm source=yahooUS About 85% of the S&P 500 Index constituents that have reported so far have exceeded profit estimates, the highest proportion in five years, according to data compiled by Bloomberg Intelligence. And yet, the median stock has been unable to outperform the benchmark on the day after results. In Europe, too, shares of companies delivering only modestly better-than-expected earnings have gone unrewarded on average, Morgan Stanley figures show. On the other hand, misses are being punished. Stocks modestly falling short of estimates have underperformed by an above-average 4.7 percentage points. "The market reaction on beats has been somewhat muted because the bar has been set so high since the stellar first-quarter earnings season," said Karen Georges, an equity fund manager at Ecofi in Paris. For example, Texas Instruments Inc. shares fell 3.1% even as the US chipmaker issued a better-than-expected outlook. Nokia Oyj declined 5.1% as investors were disappointed that the Finnish company failed to raise its growth outlook for the IP and optical network segments. Analysts estimated a 23% surge in S&P 500 earnings for the second quarter, among the best readings on record. And European profits were set to show the strongest growth in three years. With benchmark indexes in both regions scaling records shortly before the reporting period began, some market participants said a lot of the good news was already priced in. The S&P 500 has declined about 1.4% since the big US banks kicked off the earnings season last week, while the Stoxx Europe 600 Index is practically unchanged. Meanwhile, renewed tensions between the US and Iran have sent oil prices surging again, stirring worries about inflation and the outlook for economic growth. In the US, investors are getting nervous about hundreds of billions of dollars being spent on artificial intelligence development. The stock market rally will face its next test when some of the biggest technology firms including Microsoft Corp., Meta Platforms Inc. and Apple Inc. report results.