Wall St Week Ahead Lofty US stocks leave investors punishing earnings disappointments

NEW YORK, April 26 - Richly valued U.S. stocks are leaving investors with little tolerance for disappointment, raising the stakes ahead of a week in which two more technology and growth giants are set to report.

More broadly, S&P 500 companies that have topped analyst earnings estimates this quarter have seen their shares outperform by a median of just 0.2%, JPMorgan strategists said. By contrast, those that have missed earnings estimates have had their shares lag by a median of 4%, the biggest such underperformance for misses in at least eight years.

Some believe the market’s nearly unabated run higher over the past six months has made investors less forgiving of earnings setbacks. The S&P 500 trades at 20 times forward earnings estimates, well above its historic average of 15.7, according to LSEG Datastream. Rising Treasury yields could be another factor. Companies’ projected future profits are more heavily discounted in analysts’ models when bond yields rise, as investors can now get a higher reward from risk-free government debt. The benchmark 10-year Treasury yield hit 5.74% this week, its highest level since early November, following more evidence of stronger than expected inflation.

Corporate profits are"coming through at a level that can provide support for the market and kind of overcome some of the wobbliness in the inflation and the interest rate environment here," Carlson said.

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