Average Outperformance of Stocks in the S&P 500

Looking at the price movement of the firms in the S&P 500 index that have reported their 4Q 2018 results thus far (235 of 500, or about 60% of the S&P 500 market capitalization), we see investors clearly rewarding those firms beating their expectations. Even those firms missing their expectations have not been too harshly penalized. This asymmetry in relative performance between those firms beating vs missing expectations is in stark contrast to the last reporting season. During the 3Q 2018 reporting season, the opposite was true with the underperformance of firms missing their expectations much larger than the outperformance of firms beating their expectations, all in spite of one of the strongest reporting seasons on record (EPS growth was above 24% for the S&P 500 overall). We believe the asymmetry today is largely the product of lighter positioning, as well as the US Federal Reserve making clear they will be patient with further monetary policy tightening.

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