Investors are punishing stocks that miss earnings more than normal this season

Companies with disappointing quarterly results are getting punished more than usual this earnings season. Second-quarter earnings misses have resulted in an average 3.8% decline for a stock from two days before the quarterly release through the two days after the report comes out, according to FactSet. That is compared to the five-year average price decrease of 2.3% during this same window for companies that disappointed. The ones that beat Wall Street expectations have been rewarded less than average. They are seeing only a 0.3% rise during that same period, per FactSet. That is compared to a five-year average price increase of 1%, FactSet said. This phenomenon underscores the high expectations going into this season as well as a stock market that is viewed by many as overheated. The S & P 500 has gained more than 14% this year and is trading at 21 times forward earnings. “Some stocks that have done well this year have already created a high bar for earnings season, that even if EPS estimates are beat, the stocks have already rallied into them,” Peter Boockvar, chief investment officer at Bleakley Financial Group, told CNBC. “Valuations … are definitely a challenge for many stocks that have done well this year.” Case in point, shares of Ford Motors plunged more than 18% on Thursday after the automaker came in short of earnings expectations due to warranty costs. Dexcom tumbled 40% on the same day after the diabetes management company reported disappointing revenue and offered weak guidance. DXCM 5D mountain DXCM 5-day chart Those that delivered stellar results did not necessarily see a pop in their stocks. For example, JPMorgan Chase shares dipped 1% on July 12 even after the bank’s profit and revenue topped expectations as investment banking fees surged 52% from a year earlier. “So far this earnings season, the results for many large bellwether companies have been better than the stock reactions,” John Belton, portfolio manager at Gabelli Funds, said in an email. “There is an ongoing backdrop of rotation and a more risk-off mentality in the market, which I believe can cause short-lived drawdowns.” The strong tech-led rally this year has shown some signs of broadening out to small-cap shares and cyclical names as investors rotated out of winning megacap names. Investors will be closely watching this week’s earnings slate , which includes Microsoft , Meta Platforms , Apple and Amazon .