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Don't Blame Earnings

 The S&P 500 has experienced a significant pullback of more than 5% since earnings season began on January 9th.  Amazingly, though, the average stock that has reported so far this season has gained 0.39% on its report day.  (For companies that report in the morning, we use that day's change.  For companies that report after the close, we use the next day's change.)  

When the market falls this much during earnings season, the average one-day change for stocks that have reported is usually very negative.  But this season companies have averaged gains when they have reported, even as the rest of the market has plummeted.  This tells us that on a micro level investors have been pleasantly surprised by what they are hearing from individual companies.  Unfortunately,  macro factors have been outweighing the good micro news and investors are just unwilling to own stocks in general right now.  Earnings are the ultimate driver of stocks, and in our view, the fact that stocks are going up on their report days this season is a good sign for the long-term health of this market.

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