Revisiting Whether Bigger is Better (or Worse) for Earnings

Last week, as earnings season was kicking into gear, we published an analysis of the post-earnings moves of the S&P 500 (SPX) components that had reported from July 1 through July 25^th.  Our conclusion at the time was that more highly weighted companies were underperforming, implying a bit more scrutiny was being placed upon the results.  That seems to have abated after the solid responses to some megacap earnings last week.

The heavily weighted mega-cap winners were of course Microsoft (MSFT, +3.95% post-earnings, 7.34% index weight), and Meta Platforms (META, +11.25% post-earnings, 3.1% index weight).  Those more than offset the losses from Apple (AAPL, -2.50% post-earnings, 5.67% index weight) and Amazon (AMZN, -8.27% post-earnings, 3.78% index weight).  

One thing that fascinated me while entering the data was just how large the most heavily weighted companies are vis-à-vis the vast majority.  This scatterplot of SPX weights is one way to visualize it.  Note how the vast mass of dots is just above the zero line on the y-axis:

Sources: Interactive Brokers, Bloomberg

Overall though, we see that some things have changed since the prior week.  We had 150 companies reporting in that sample; now we have 327 through Monday.  That’s about 65% of the number of stocks in the index (there are actually 503, not 500, thanks to two classes each of Alphabet, Fox, and Newscorp) and about 69% of the current index weight.  Unlike before, when a 56.33% majority of post-earnings moves were higher, that is now a slight 48.62% minority.  Also unlike before, we see a slight improvement when we adjust the average post-earnings move by index weight.  The weighted average is now higher than the average move. 

Bottom line, earnings season is going decently, and while we would like to assert that there is a strong relationship between the size of the reporting company and its post-earnings results, we can’t.

Sources: Interactive Brokers, Bloomberg

From the data we published through July 25: