Daily Brief - Earnings Beat, Guidance Bleak

TLDR: As the curtain falls on this earnings season, an impressive 79% of S&P 500 companies have outshone profit forecasts. However...

the celebrations have been somewhat muted, with the median stock barely outperforming the index by a whisker on results day—the tightest margin seen since the close of 2020.

This tepid response is largely due to skepticism around future performance, punishing stocks with lukewarm forward-looking guidance.

With only 18% of firms issuing strong future earnings guidance, traders are scrutinizing every detail to justify the lofty valuations seen after a robust 20% rally in the S&P 500 since last October. High hopes have set the stage for potential disappointment as the U.S. economic growth cools and inflation remains sticky.

The high bar for corporate earnings growth amid uncertain monetary policy adds another layer of complexity. Meanwhile, certain sectors like chipmakers show promise, projecting about 40% growth in Q2, yet even this silver lining was dimmed by giants like Intel Corp. and AMD issuing cautious forecasts.

Amidst this, the consumer sector remains a wildcard. Early signals from restaurant earnings suggest potential stress among lower-end consumers, a sentiment echoed by Starbucks with its first sales drop since 2020. All eyes are now on upcoming earnings from major retailers like Walmart and Target, with the market poised on a tightrope between hopeful guidance and the reality of economic headwinds.

Earnings Spotlight: An update from the entertainment industry

This week, one of the most anticipated announcements is Walt Disney's second-quarter report, set for release before the market opens on Tuesday. Analysts predict that the results will show improvement over last year but may not reach the heights of the previous quarter.

Disney has been actively restructuring to enhance its film and TV production, sustain the success of its theme parks, and importantly, guide its Disney+ streaming service toward profitability. As the owner of ESPN, Disney's insights into the sports media arena, especially any updates on the ongoing negotiations for the NBA's next media rights deal, will be particularly significant.

Scenario Spotlight: When Disney beats estimates

The chart above displays the median 1-week response from the S&P Consumer Discretionary sector, based on data from the past 36 instances where Disney's earnings exceeded estimates.

Market Movers: Historical response from Disney's peers

Here is the 1-month performance of Disney's peers, based on previous earnings beats:

1. Apple: 2.51%
2. Amazon: 2.50%
3. Paramount Global B: 0.88%
4. Comcast: 0.06%
5. Warner Brothers Discovery Series A: -0.20%