Corporate America's profit numbers are just barely beating Wall Street's expectations

By Bill Peters

S&P 500 companies' earnings are mostly topping analysts' estimates - but by the narrowest margin in roughly four years

Cisco is due to report quarterly results this week.

As companies try to keep Wall Street happy in a period of market unrest, their third-quarter results are barely clearing the bar.

Most S&P 500 SPX companies' quarterly earnings are still topping analysts' estimates. But they're on track to do so by the narrowest margin in about four years, according to a FactSet report published on Friday.

Overall, companies are reporting earnings that are only 2.7% above those estimates, according to the report. That's below the average over the past five years of 7.5%. If that 2.7% figure holds, it would be the smallest average earnings beat since the fourth quarter of 2022.

So far, 88% of the companies in the S&P 500 have reported third-quarter results, according to FactSet. Of those, 84% have reported earnings per share that surpassed Wall Street's estimates, above the average seen over the past decade.

For those companies that do fall short of expectations, the market actually has been punishing their misses a little less than normal, the FactSet report found. Companies whose earnings have missed estimates have seen have seen an average stock-price drop of 1.1% stretching from the two days before their results were published through the two days after - compared with the average drop of 3.1% when looking at performances from the past five years.

The findings were published after tech stocks on Thursday put up their worst day since 2020, following worries about the future of AI infrastructure development as the Democrats prepare to take control of Congress and key gubernatorial seats.

Investors this year have been concerned about how much tech companies are spending and borrowing to develop artificial intelligence. But the Democrats' victories in Congress and in some state governors' races, including in Texas, Ohio and Georgia, have raised fears among investors of deeper regulatory scrutiny. Data centers has been met with opposition from local communities following increases in consumer utility bills that have left many residents feeling powerless over AI's advance.

"The markets are pricing the rising risk of a 'sudden stop' in AI buildout and the economic and financial trend around it," Mehmet Beceren, a senior market strategist at Rosenberg Research, said over email.

He added that it was "good to see the froth being skimmed" from the AI trade, which has driven much of the stock market's growth over the past few years. But he was worried about a further correction, particularly within bonds for "neocloud" companies that providing cloud services for artificial intelligence.

One of those companies, CoreWeave (CRWV), reports results in the week ahead. Results are also due from Cisco Systems (CSCO).

-Bill Peters

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

11-08-26 1000ET