Companies are beating earnings estimates again this reporting season, but investors don't care

Published Thu, Feb 3 202212:18 PM ESTUpdated Thu, Feb 3 202212:47 PM EST

Fourth-quarter earnings reporting season has continued to see plenty of earnings beats – with three out of every four companies still beating earnings and revenue estimates. But as the season hits the halfway point on Thursday, it's the forward-looking tone that's dictating the trader reaction. Q1 earnings estimates have come down since the start of Q4 earnings season. The S & P 500 is down 5% year-to-date and is also in the red for the reporting season. That doesn't happen often. According to Deutsche Bank strategist Binky Chadha, the S & P 500 rallies during earnings season about 80% of the time historically, with an average return of 2%. According to Refinitiv, analyst consensus for earnings growth in Q1 now sits at 6.8%, compared to 7.6% just before the big banks reported in mid-January. Full-year earnings growth estimates have had no upward momentum of late too – falling to 8.4% from 8.6% during the same period. Bank of America strategist Savita Subramanian notes that their ratio that tracks positive vs. negative guidance sits its lowest level since February 2020 – just as Covid was gaining momentum. That's showing that more companies are giving weak guidance this earnings season. A key reason for the Q1 slowdown – omicron. As most companies began their new quarter around January 1, they could face more omicron impact in Q1 than in Q4. Omicron troubles were more centered on the Northeast during the holiday season, while it became a broader nationwide problem after the start of this year. Supply chain issues, inflation pressures and labor problems are all expected to remain significant headwinds in Q1 and for at least the first half of the year. Wednesday's awful report from Meta Platforms is getting all the attention on Thursday. It was a rare earnings miss for Meta – just its third in its history – and more troubling, guidance was poor on concerns about competition and ad pricing. But Meta is very clearly not alone in the weak outlook. A flurry of companies – from a broad array of industries too – had solid results on Thursday morning, but warned that current quarter and/or current year results would fall short of Wall Street expectations. Honeywell is struggling with supply chain constraints and lower margins. It now sees full-year revs of $35.4B-$36.4B and EPS of $8.40-$8.70 – both below Wall Street consensus of $36.76B and $8.97, respectively. HanesBrands has been experiencing elevated costs as it tries to expedite products to retailers. Q1 earnings guidance of $0.24-0.31 is well below $0.38 estimate. Merck saw disappointing sales of its cancer drug Keytruda in Q4 and then gave weak earnings guidance for the year. Its full-year EPS outlook of $7.12-$7.27 is below $7.29 consensus. Biogen had disappointing sales of its Alzheimer's treatment, Ad