Companies are Exceeding Expectations. Why Isn't the Mar

Companies are Exceeding Expectations. Why Isn't the Market?

April 30, 2018

By Colin OShea Securities Analyst  

Earning season is underway for the first quarter of 2018. Thus far, eighty percent of companies reporting have beaten expectations. While this is good news, you may wonder why the results are not showing up in market prices. The reason is that the stock markets are a forward-looking mechanism.  In other words, today’s prices reflect expectations for tomorrow. Does this mean investors expect a deceleration in earnings or is it just uncertainty?

This uncertain market sentiment certainly appeared after a record setting January, the best start in twenty years. February brought volatility and a market correction, attributed to worry among investors over trade tariffs, inflation, and rising interest rates. 

The first quarter witnessed negative returns for both the stock (S&P 500) and bond (Bloomberg Barclays U.S. Aggregate) indices for only the ninth time since 1984. 

We expect the remainder of the year to be positive but lower returns than last year. This is in line with historical Presidential cycle returns. The chart below shows lower average returns during the most of the second year of a Presidential term with strong fourth quarter performance.


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About the Author

Colin O'Shea

Colin O'Shea is a Securities Analyst within the Wealth Management Division at Security National Bank, where he researches and analyzes assets and trade securities and helps develop investment strategies. A veteran who served in the U.S. Army for 12 years, O'Shea holds a Business Administration Degree from Morningside College.