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Weak Guidance, But Investors Are Buying On Earnings

Last Friday we noted that forward guidance so far this earnings season has been as bad we've seen since the depths of the financial crisis. Don't tell that to investors, though, because they've been bidding stocks higher on their earnings report days. Since the start of earnings season, the average one-day change in reaction to earnings (for companies that report after hours, we use the next day's change) for the 750+ stocks that have reported has been +0.43%. That's a solid reading, especially with the S&P 500 flat since earnings season began. As shown below, if the gains continue through the end of earnings season in mid-February, it will be back-to-back quarters where stocks have gone higher in reaction to earnings. Prior to last earnings season, we'd had two earnings seasons where stocks reacted very negatively to their…