AP

On Wall Street, extreme punishments for weak profit reports

Nov 2, 2022, 8:54 PM | Updated: Nov 3, 2022, 9:32 am

FILE - Numbers for the Dow Jones Industrial Average are displayed on a screen at the New York Stock...

FILE - Numbers for the Dow Jones Industrial Average are displayed on a screen at the New York Stock Exchange on Sept. 13, 2022. The punishment has been extreme so far this earnings reporting season when companies report profits and sales that fall short of expectations. (AP Photo/Julia Nikhinson, File)

(AP Photo/Julia Nikhinson, File)

NEW YORK (AP) — When it comes to meeting Wall Street’s expectations for profit and sales, it’s put-up-or-get-beat-up time for CEOs.

It hasn’t happened very often, but when companies have turned in both weaker profits and sales this reporting season than analysts expected, investors have walloped them with record-sized punishments for their stock prices.

Google’s parent company Alphabet, for example, committed the sin of reporting $69.1 billion in revenue for its latest quarter, instead of the $71 billion that Wall Street expected, along with earnings below forecasts. Its stock plunged 9.1% the next day, its second-worst showing in more than a decade. That was 8.4 percentage points worse than the 0.7% drop for the overall market that same day, as measured by the S&P 500.

Alphabet isn’t alone in feeling the pain. With just over half of all S&P 500 companies having reported their results for the summer, those that fell short of expectations for both profits and sales saw their stocks perform 6.7 percentage points worse the next day than the S&P 500, according to a recent BofA Global Research report. That’s a much bigger hit than usual and potentially on track for a record. The historical average is just a 2.4 percentage point gap.

To be sure, the damage hasn’t been as bad for companies that can top expectations for either profit or for sales, which has been the majority of them. But the degree of punishment shows how averse investors are to disappointment when a fragile economy is threatening sales and higher costs are dragging on profitability.

Looking ahead, analysts have been cutting their forecasts for S&P 500 profits in the upcoming reporting season at a faster rate than usual, according to Deutsche Bank strategists. The pressure is still on, and expectations for 2023 may have to come down even more sharply if the economy does fall into a severe recession, as some investors fear.

Copyright © The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

AP

lily gladstone...

Jake Coyle, The Associated Press

‘Oppenheimer,’ Lily Gladstone win at 30th Screen Actors Guild Awards

Gladstone won Saturday and the crowd erupted. Stone, too, stood and vigorously applauded. Her win would be a first for Native Americans.

12 hours ago

Image: An Alaska Airlines passenger jet approaches to land at the Los Angeles International Airport...

Associated Press

Man accused of stabbing another passenger on a flight from Seattle to Las Vegas charged

A man who witnesses say stabbed another passenger on an airline flight in January told authorities he intended to kill the victim.

3 days ago

Image: Dr. Candice Matthews, left, listens as Texas state Rep. Ron Reynolds, right, with Darryl Geo...

Associated Press

Judge: Texas school legally punished Black student over hairstyle

A Black high school student's punishment by his Texas district for refusing to change his hairstyle doesn't violate state law, a judge said.

3 days ago

The logo for Boeing appears on a screen above a trading post on the floor of the New York Stock Exc...

Associated Press

Boeing ousts head of 737 jetliner program weeks after panel blowout on flight

Boeing said the head of its 737 program is leaving the company in an executive shake-up weeks after a door panel blew out on a flight over Oregon.

4 days ago

Image: The Alabama State Capitol is seen on May 15, 2019 in Montgomery, Alabama....

Associated Press

Alabama Supreme Court rules frozen embryos are ‘children’ under state law

Critics say the Alabama embryo ruling may have sweeping implications for fertility treatments.

5 days ago

Image: People take cover during a shooting at Union Station during the Kansas City Chiefs Super Bow...

Associated Press

Two men charged with murder at Kansas City Chiefs parade

Minutes after Kansas City Chiefs players spoke at a victory celebration Wednesday, multiple people near the parade route were carried away on stretchers.

5 days ago

On Wall Street, extreme punishments for weak profit reports