Earnings surprises occur when a company reports earnings significantly better or worse than a company expects. This can cause drastic swings in share prices in either direction. When there is a large amount of “beats”, it is a generally a positive signal to investors of a bullish movements. On the other hand, when companies fail to meet expectations, share prices tend to decline and lead investors to refrain from the equities market. If there enough negative surprises, stock buying can falter throughout the overall market.
Often times however, the state of the stock market is dictated by a handful of very large market cap stocks. A bellwether stock by definition is a company stock that is used to gauge the performance of the whole economy. In the past, General Motors and IBM were viewed as bellwether stocks, and now Wal-Mart and Alcoa are held in the same regard. Quite simply, when these stocks are performing well, then investors can be optimistic of the state of the stock market and overall economy. However, when these stocks fail to meet expectations, it may point to trouble for the stock market and …show more content…
The outlook of many large companies in varying industries provide insight on where the U.S. and global economy might be heading. When retail banks report earnings, this can reflect the demand for loans in the U.S. and globally. LIkewise retailers play a large role in how consumerism is performing. When large retailers like Wal-Mart and Target beat expectations, it reflects an improving consumer spending sentiment. Currently, consumerism has been strong in the United States, however manufacturing has been quite soft. Industrial facing businesses have performed poorly as exhibited by worse than expected organic growth of a number the industry’s