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Of all the characteristics distinguishing the second quarter 2023 reporting season from those of the last 12 years, one stands out: S&P 500 companies saw the most significant adverse price reactions to positive earnings surprises.

That's according to a recent report by FactSet, which monitors closely the financials of U.S. listed companies.

"To date, 84% of the companies in the S&P 500 have reported earnings for the second quarter," John Butters, vice president and senior earnings analyst at FactSet, wrote. "Of these companies, 79% have reported actual EPS above the mean EPS estimate, which is above the five-year average of 77% and above the 10-year average of 73%. In aggregate, earnings have exceeded estimates by 7.2%, which is below the five-year average of 8.4% but above the 10-year average of 6.4%."

Positive earnings surprises usually drive equity prices higher. But not this time around.

"Companies that have reported positive earnings surprises for Q2 2023 have seen an average price decrease of 0.5% two days before the earnings release through two days after the earnings release," continued Butters. "This percentage decrease is well below the five-year average price increase of 1.0% during this same window for companies reporting positive earnings surprises."

That's the most significant average negative price reaction to positive quarterly earnings surprises experienced by S&P 500 companies since Q2 2011 (-2.1%).

An excellent example of a company that smashed earnings expectations but experienced an adverse stock price reaction is Nvidia — its stock rallied in pre-market and early regular trading. Still, it eventually reversed course by the end of the day.

Then there's Tesla. It, too, reported earnings above estimates, but its stock sold off.

Butters attributes this market anomaly to what companies say about the future. "In terms of earnings guidance from corporations, 62% of the S&P 500 companies (49 out of 79) that have issued EPS guidance for Q3 2023 have issued negative guidance," he explained. "This percentage is between the five-year average of 59% and the 10-year average of 64%."

Marc Dizard, CFA, CFP,chief investment strategist at PNC Asset Management Group, sees the lowering of forward-looking guidance as the chief cause of the adverse price reaction to upbeat earnings surprises.

"This is a reflection of the fragile state of the economic backdrop and, even more importantly, a commentary on how long the strength and resilience of the U.S. consumer can continue," he told International Business Times. "As financial markets finally come to grips with 'higher for longer' monetary policy, the strain posed on consumers, and in turn companies, is starting to show."

Joseph Camberato, CEO at, attributes the adverse price reaction to investor fixation with the prospect of an impending recession that could hurt future earnings.

"When it comes to the rather puzzling negative reactions we're witnessing in response to positive earnings surprises, investors are having a hard time shaking off their 'brace for recession' mindset," he told IBT.

Behavioral economists call it "anchoring," a cognitive bias where decision-makers stick with an initial assessment of a situation.

"Everyone has been navigating through an economic fog these last two years, and this cautious approach might be causing investors to play it safe and stick to their initial predictions for 2023," continued Camberato. "They won't budge on their investments in early January, which keeps stock prices lower than they should be."

Arianna Pinello takes a different view in an article titled "Investors' Differential Reaction to Positive Versus Negative Earnings Surprises" published in the AAA 2006 Financial Accounting Reporting. She attributes this market anomaly to inflated investor expectations ("whisper numbers"), exceeding the analyst community's expectations.

That's worrisome for Wall Street, as it usually is a sign of a market top.

"If this continues beyond earnings season, it would be worrisome. It would show multiple contractions," Christopher Day, founder at Days Global Advisors (NYSE: HF) and managing director at Doliver Advisors, told IBT. "It shows that it's [the news] already been priced in."

"Equilibrium should be somewhat lower regarding what these companies are worth on any growth model," he added. "I don't think it's ominous, but it means the market was overbought, and most likely, people are taking profits before the next Fed decision."