Have Investor Sentiments Shifted In 2014?
After a record setting 2013 bull market, investors are showing signs of holding companies earnings to higher standards.
The Wall Street Journal reported that “some of the most recognizable names in American business have suffered large share-price declines following quarterly reports deemed disappointing by Wall Street, even after per-share earnings met or exceeded analyst estimates.”
Welcome to the 2014 stock market, where 2013's “easy money” is harder to capture as investors begin to focus on companies that have the capacity to not only adjust to market challenges, but show a clear trajectory towards future growth.
On February 5, Twitter (NYSE: TWTR) reported its fourth quarter results. The company beat the consensus estimate by three cents and beat revenue estimates by $26.14 million. Investors completely ignored the positive quarter and focused on the company's declining Timeline views and slowing monthly average user growth in the quarter.
Shares of Twitter collapsed the following day, losing nearly one quarter of its value.
Twitter wasn't alone. Shares of Yahoo (NASDAQ: YHOO) tumbled 8.7 percent the day after the company reported its fourth quarter EPS, which beat the consensus estimate by eight cents and revenue was in-line with estimates.
Investors preferred to focus on the negative aspects of Yahoo's report, such as revelation that Alibaba's third quarter revenue growth only rose two percent quarter-over-quarter. Yahoo holds an approximate 24 percent in Alibaba, which many Yahoo investors consider to be a “treasure trove” because the Chinese e-commerce giant has margins that are far more attractive than its American peers.
According to FactSet, of the 344 companies that have reported earnings thus far, 72 percent have reported an EPS above estimates. Just under 53 percent of those companies saw shares rise following their earnings report, below the five-year average of 58 percent.
The shift in investor sentiment stems from inconclusive macro-economic data. On February 7, the government said that the U.S. economy added 113,000 jobs in January, marking the second straight month that the employment addition numbers fell short of expectations. On the one hand, the economy is growing and able to produce new jobs, but is this sufficient for stocks to command historically high valuations?
The Federal Reserve has lowered its monthly bond purchases to $65 billion from last year's $85 billion per month pace. Many investors stand by the philosophy that the Fed's purchasing program was the single largest catalyst to boost stocks throughout 2013.
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