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Scoop Mysteries: Good news, but stock falls?
Market Mysteries of the week
Why do stocks sometimes fall after reporting good financial performance?
Answer: Don’t worry too much about it. Short-term moves in the stock market don’t always make sense. News outlets like to cite stock price falls or jumps when there’s a shocking news release, but unless it’s something dramatic, the daily up and down doesn’t consistently align. News outlets or financial writers are just attributing the moves, not explaining them. We’ve seen news articles change their titles and content from evening to morning, because the stock changed directions.Example: Apple and Microsoft both reported amazing quarterly performance - HUGE profits and growth across most of their business. Stock prices for both companies fell. Both companies outperformed Wall Street expectations. Several Wall Street Analysts actually raised their price targets for both companies. So what gives? Everything is about expectations. Both companies have appreciated a lot over the last year, because investors already expected them to be doing well. So even though the companies outperformed the specific profit expectations, investors may have already been expecting them to beat their expectations. Excellence is the expectation for these companies, so they likely need to do something spectacular to see a price jump.
Terms: Earnings - Another name for profits.Earnings Season - Public companies are required to report quarterly on their financial performance (profit, revenue, etc.). Earnings season is the few weeks at the end of each quarter when most companies are reporting.Beating/Missing - Wall Street Analysts build expectations of what the company is going to earn in profits and sales for the quarter. The actual results either outperform or under perform those expectationsPrice Targets - Wall Street Analysts forecast out what they think a particular company’s stock should be worth. It’s usually a very short-term expectation, so it’s more relevant to consider the direction they think it’s going.
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