While the second-quarter earnings season has been strong, measuring up to high expectations, there has been little or no reward for companies reporting better-than-expected earnings per share and sales.
With the broad US equity index setting records as corporate reports have been filed, constituents beating forecasts have not rallied any harder than the benchmark.
Bank of America Merrill Lynch has noticed the pattern and points out that it has preceded previous peak valuations on the index, in 2000 and 2007.
“The reward for beats has been small or nonexistent across all 11 sectors this quarter,” said equity strategist Savita Subramanian. “This lack of a reaction could be another late-cycle signal, suggesting expectations and positioning already more than reflect good results/guidance.”
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