Quant Commentary

Earnings Season & ML Signal Update

Name: FS Insight
Price range: $$$

Adam Gould, CFA ^AC

Head of Quantitative Research

Introduction

As we wrap up 2022, we take one final look at the performance of stocks in and around earnings releases. We also examine how the environment for alpha generation has continued to become more favorable, which should benefit stock pickers into 2023. Lastly, we update our signal that extracts management sentiment from earnings call transcripts through the end of the just-completed earnings season.

Stock Performance and Idiosyncratic Risk During Earnings Season

One phenomenon we have repeatedly pointed out during the past year is the tendency for companies that beat earnings estimates to subsequently outperform the index, and those that miss seeing likely underperformance. The latter of these observations, that stocks missing earnings have tended to underperform, is reflected in the light blue bars in Fig. 1. For the just-completed earnings season, companies missing earnings underperformed the S&P 500 by an average of 3.4% in the 3-day period following announcement.

Fig. 1 – Companies Beating Earnings are Being Handily RewardedSource: S&P, FactSet, Bloomberg, Fundstrat analysis.Note: Shows the 3-day relative return for stocks beating (dark blue bars), in line with (gray bars) and missing (light blue bars) earnings estimates. An earnings beat (miss)...

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Adam Gould, CFA ^AC

Head of Quantitative Research

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Analyst Certification (Reg AC)

Adam Gould, CFA, the research analyst denoted by an “AC” on the cover of this report, hereby certifies that all of the views expressed in this report accurately reflect his personal views, which have not been influenced by considerations of the firm’s business or client relationships. Neither I, nor a member of my household is an officer, director, or advisory board member of the issuer(s) or has another significant affiliation with the issuer(s) that is/are the subject of this research report. There is a possibility that we will from time to time have long or short positions in, and buy or sell, the securities or derivatives, if any, referred to in this research.

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