Surpassing Targets
The explanation isn’t in the results themselves. Since the first quarter of 2014, Nasdaq companies have beaten earnings estimates by an average 5.4 percent. This quarter, they’re surpassing targets at the same rate, even as their earnings- related moves swing 39 percent wider than the average since 2010.
That didn’t keep investors from piling into stocks like Western Digital Corp. and Check Point Software Technologies Ltd., which rose at least 7 percent after surpassing analyst estimates by a smaller margin than the overall index. Small misses, such as the 1.1 percent disappointment by TripAdvisor Inc. and 1.6 percent shortcoming by Whole Foods Market Inc., led to reactions more than twice as big as the index average.
One reason investors are drawing greater distinctions among companies is that overall S&P 500 profit growth is forecast to slow to less than 1 percent in 2015, down from an annual rate of 15 percent since 2009.
Makeup Reflection
Stronger reactions in Nasdaq 100 stocks partially reflect its makeup, an analysis by RBC Capital Markets suggests. During this earnings season, technology companies and makers of nonessential consumer goods have seen the biggest moves -- and they account for almost three-quarters of the Nasdaq gauge.
“Whether it’s a new tech name that disappoints after a lot of optimism going in or an old tech name that disappoints because they’re losing market share, the dichotomy between winner-takes-all and the losers is bigger,” Jonathan Golub, chief equity strategist at RBC, said in an interview.
Positive results are leading to share spikes that are more than 10 percentage points away from the average decline in losers, a gap between the two that rivals the widest since 2012, according to data compiled by Bloomberg.
The dichotomy may be related to company valuations as well. The average price of companies with the biggest reactions to earnings is 41 times annual profit, compared with 29 times for companies with smaller moves.
“It’s getting tougher to find a lot of earnings growth in a somewhat-rich market,” Daniel Morris, global investment strategist at TIAA-CREF Asset Management in New York, said by phone. His firm oversees about $869 billion. “You’re looking for those stocks that hopefully are going to surprise positively. Everyone will be chasing these stocks.”