Investors in U.S. stocks are rediscovering the power of earnings.
In the Nasdaq 100 Index, companies have swung up or down an average of more than 5 percent immediately after reporting results in the past three weeks, the highest since 2012, data compiled by Bloomberg show. Those that disappoint investors tumbled 4.8 percent while those pleasing them gained 5.3 percent.
Bigger distinctions are being drawn between winners and losers in a market where overall profit growth has ground to a halt and equity returns have slowed after a six-year advance. For fund managers that struggled to beat indexes for the last two years, larger post-earnings swings are a chance for stock picking skills to shine again.
“It’s music to my ears,” said Michael Arone, the Boston- based chief investment strategist at State Street Global Advisors’ U.S. Intermediary Business, which oversees $2.4 trillion. “It indicates the market is moving beyond the Fed raising rates, Greece and China, and getting down to brass tacks about what drives stock prices.”
Bigger reactions to profit reports are one of the only examples of motion in an otherwise stagnant equity market. The Standard & Poor’s 500 Index this month traded in the tightest range ever as the benchmark gauge moved an average 0.56 percent per day, compared with 0.75 percent since the bull market began in March 2009.
Either Direction
With 65 companies in the Nasdaq 100 reporting, stocks are moving at a market-adjusted rate of 5.1 percent in either direction in the session immediately after the release of results. That compares with a 15-year high of 7.4 percent in the third quarter of 2008 and an average 3.7 percent jolt last quarter, the smallest since at least 2006.
S&P 500 futures expiring in September slipped 0.2 percent at 11:14 a.m. in London, while Nasdaq 100 contracts were little changed.
More volatile trading after earnings releases may be a sign that the indiscriminate buying that drove U.S. stocks up 211 percent since 2009 has run its course, said Steve Wruble, chief investment officer at RiskX Investments.
“Common sense tells you that at market tops, you trim winners and get rid of the losers,” Wruble, who oversees about $1.2 billion at Portland, Oregon-based RiskX, said by phone. “An earnings miss is an excuse to get out of stocks that are growing at higher valuations. When there is opportunity or risk, it appears to be magnified because of some skittishness in the market.”