Wells Fargo: This earnings season marks "one of the weakest starts for EPS in history," with most companies underperforming expectations

According to Jinse Finance APP, Wells Fargo has stated that the start of the US earnings season has been disappointing. In a report to clients, the analyst team led by Chief Equity Strategist Ohsung Kwon wrote that, about a week into the third-quarter earnings season, companies that have reported so far have earnings per share that are 0.3% below analysts' consensus expectations.

This is significantly lower than investors’ prior expectations: data dating back to 2012 shows that during earnings seasons, corporate profits usually beat expectations by an average of 4%. In addition, only 48% of companies have beaten expectations, compared to the historical average of 61%.

Analysts stated that there are currently no signs of "fundamental cracks" and that companies remain "generally optimistic" about demand. However, they pointed out that the early data suggests this is "one of the weakest starts to an EPS season in history."

In recent years, consistently strong corporate profits have provided support for stock prices. But so far, the mixed results have not offered much of a boost. Major Wall Street banks have shown divergent performances, with their stocks recording the longest streak of weekly declines since the 2008 financial crisis.

Bank of America strategists Savita Subramanian and Victoria Roloff believe that results have been “overall solid but lacking surprises.” In the first week of this earnings season, about 40% of S&P 500 bank stocks beat expectations on both earnings and revenue, compared to 100% for the same group last quarter.

“Banks continue to send optimistic signals in terms of credit and consumers, but persistent fears about a peak in capital markets activity remain,” Subramanian and Roloff wrote in a report released on Monday.

Banks are not the only ones disappointing the market. Delta Air Lines, hit by high jet fuel costs, posted third-quarter earnings below expectations and lowered its full-year profit guidance.

The muted market reaction is also noteworthy, due to energy shocks triggered by the Iran war, rising interest rates, and the upcoming US congressional elections in early next month clouding the outlook.

Bank of America data shows that companies that beat expectations on both earnings and revenue delivered less outperformance in their stock prices the next day than usual. Overall, individual stock prices fluctuated by an average of 3.4% the day after earnings releases, compared to 5.3% last quarter.

“Although we expect results to be solid, in the face of macro headwinds, reassuring guidance on the outlook may become a bigger driver of stock performance this quarter,” Subramanian and Roloff wrote.