Earnings Beats Not Necessarily Bullish For Stocks

Earnings are nearly over and most companies are surpassing consensus estimates. But there’s considerable debate on StockTwits.com concerning whether the beats are really a bullish sign for the overall market.

Earnings season is 80% over at this juncture – 75% of companies are beating on EPS and 52% are beating on revenues. $SPY $QQQ $VXX $BAC $DIS

— Spencer McLeod (@Spencer_McLeod) May. 6 at 04:31 PM

@Spencer_McLeod NON GAAP junk earnings, revised down

— Gary Fitton (@MaxDamage) May. 6 at 05:10 PM

According to a May 2 FactSet report, though nearly 3/4 of companies are beating on earnings, they’re not doing it on strong sales. Only about half of companies that reported have topped Wall Street consensus estimates for revenues.

The difference raises questions about whether the earnings beats are sustainable. After all, most companies can only cut so much fat before they hit critical mass.

Also, the companies beating are topping reduced estimates.

#Earnings expectations fell 4% during Q1. A decline of 0.4% is now anticipated. http://stks.co/r0Aec $SPX @CNBCAlex

— FactSet (@FactSet) Apr. 2 at 03:41 PM

Perhaps more concerning, companies are not expecting stronger sales growth in the future. A majority of companies that reported by last week, 53%, issued negative guidance for the second quarter. Whole Foods, $WFM, added to the negative guidance group Tuesday night when it missed consensus estimates on both earnings and revenues, and cut guidance. The stock fell nearly 22% by midday Wednesday.

StockTwits’ investors are split on the market’s direction. The ETF that tracks the S&P 500, $SPY, has 66% bearish sentiment and Tuesday’s Twitter-sparked social networking selloff soured sentiment on the Nasdaq ETF, $QQQ, from 51% bullish to 54% bearish, according to StockTwits’ analytics. Sentiment on $DIA, the ETF that tracks the Dow, however, is 54% bullish.

Earnings this week have done little to push sentiment decisively in one direction. The performance of major companies that capture investor attention has been mixed. Some examples: Groupon, $GRPN, beat Wall Street first quarter EPS and sales estimates but disappointed on guidance after alerting analysts Tuesday night that investments in the second quarter would pressure earnings. The stock fell 14% by 9:30 a.m. Wednesday. Disney, $DIS, however, topped expectations on all accounts and rose about a percent by 10a.m.

TripAdvisor, $TRIP, confounded expectations with a miss and raise quarter. The company fell short of consensus estimates on sales and EPS Tuesday evening but, nonetheless, rose Wednesday on better-than-expected guidance and a series of analyst upgrades.

StockTwits’ users summed up the earnings action with one word: choppy.

$SPY Pure chop, neither bearish nor bullish…

— Dom Luminous (@DomLuminous) May. 7 at 09:47 AM

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