Companies have been beating earnings estimates. The 44 companies in the S&P 500 that had reported earnings as of Tuesday night posted sales growth that was 2.2 percentage points better than expected and earnings that were 8 percentage points higher than forecast, according to Julian Emanuel at Evercore ISI.
Adding on to the optimism, the Cboe Volatility Index — a gauge of investor fear popularly known as the VIX — is near a 52-week low. In other words, investors think stock prices will rise over the next 30 days.
Yet the positive sentiment hasn't seeped into broader markets. Of course, individual stocks have reflected companies' financial health. IBM, for example, rose on the news that it managed to trim costs, while Netflix sank 3.17% because its earnings fell.
But the broader indexes have remained essentially flat. There are, in my opinion, two reasons for that.
First, even though companies have been reporting better-than-expected results, that trend could have low base expectations to thank: Analysts think S&P 500 earnings will fall 5.2% in the first quarter. But this has the effect of making earnings look better than they actually are. As CNBC Pro's Scott Schnipper wrote, "Expectations about the immediate earnings outlook have been down for so long, the actual numbers themselves could look like up to investors."
Second, fewer major companies gave forecasts for the year ahead. The lack of direction regarding their future earnings, coupled with a possible interest rate hike in the U.S. — which now seems more concrete after the U.K. reported yesterday that its inflation remained in the double digits — exacerbated investors' uncertainty.
It appears that investors are already training their eyes on the Federal Reserve's next meeting in May, rather than poring over last quarter's earnings.
