## Stock market today: Nasdaq slips, Dow gains amid fresh earnings surge
With uncertainty about the timing of a potential Federal Reserve interest rate cut and concerns over the impact of the Federal Reserve holding interest rates at a 23-year high at times weighing on stocks at the beginning of the year, earnings have produced an above-average beat, supporting recent moves higher in the stock market. Through about two-thirds of the S&P 500’s quarterly reports, companies are posting an average six percentage point earnings per share beat this quarter, per Bank of America. That’s about double the average 3% beat normally seen by S&P 500 companies. Overall, 70% of companies have reported beats, which is above the historical average of 63%. The S&P 500 (^GSPC) is on pace for earnings per share to grow 1.9% compared to the same quarter a year prior, per Factset.
Ohsung Kwon, the Bank of America US and Canada equity strategist, told Yahoo Finance that, based on expectations, earnings so far have been “good.” “The beat has been driven by margins, not necessarily sales,” Kwon said. “I don’t think anybody really expected sales to improve that much in Q4…Companies have cut costs, margins are improving and companies are delivering.”
Earnings haven’t come without issues though. Mentions of weak demand remain “elevated,” according to BofA, and have played out in revenue numbers that are barely topping estimates. And companies that miss are seeing worse than normal reactions in their stock during the following trading days. Companies that miss Wall Street’s expectations for earnings and revenue are seeing their stocks fall 4.3% on average the next day, per BofA. This well above the typical average drop of 2.4%.
“Overall market sentiment has improved a lot over the past two months or so,” Kwon said. “Valuations are not cheap. And because of that, if you are missing [earnings estimates], then you’re getting penalized more than before so the bar is pretty high.”
