In various reports for Bespoke subscribers over the last couple of weeks, we’ve been highlighting the extreme weakness that stocks reporting earnings have experienced this earnings season.  Below is a chart showing the average one-day price change for stocks reporting earnings by quarter going back 15 years to 2001.  As shown, stocks that have reported this earnings season have averaged a decline of 0.65% on their earnings reaction days.  (For stocks reporting before the open, their earnings reaction day is that trading day.  For stocks reporting after the close, its earnings reaction day is the next trading day.)

Investors are clearly selling first and asking questions later in response to earnings this season.  Should the average one-day change of -0.65% hold through the remainder of the reporting period, it will be the worst season in nine quarters.

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Below we’ve broken down the one-day price reaction to earnings by sector and whether or not the stock beat or missed consensus earnings per share estimates.  For all stocks that have reported, the average stock that has beaten earnings estimates has risen just 0.96% on its earnings reaction day.  Conversely, the average stock that has missed estimates has fallen -4.29%.  That’s a huge gap.  The winners this season have not been rewarded, while the losers have gotten slaughtered.

Looking at individual sectors, Real Estate and Energy stocks that have beaten estimates have averaged declines on their earnings reaction days!  And while Health Care, Consumer Discretionary, and Industrials stocks that have beaten estimates have averaged gains of more than 1%, stocks that have missed in these sectors have fallen more than 5.5%.

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