US corporate results: 'No bad news = good news', BofA-ML says

Analysts at Bank of America-Merrill Lynch sounded a positive note on the US corporate earnings season after a first week of updates.

With 55 S&P 500 components having published thus far, they told clients that 'no bad news = good news', with 67% of the companies which had published results having beaten analysts' estimates for their earnings per share and 36% on forecasts for top-line growth.

Those were the smallest proportions of EPS and sales beats since the second quarter of 2016, but in any case, on average the shares of so-called 'misses' had in fact outperformed the market the next day by 0.3 percentage points.

"Given many stocks had increasingly been pricing in a dire growth scenario and risks around trade, as long as guidance/commentary wasn't worse, companies may not be trading down as much as usual on a miss," the investment bank explained.

Nevertheless, after the first week of earnings, which was dominated by Financial and Energy, the consensus forecast for S&P 500 earnings per share had retreated from $40.51 to $40.32 (BofA-ML: $40.25).

Now, with earnings updates set to broaden out by sectors, including to Health Care, Industrials, Financials and Technology, company outlooks would be in focus, BofA-ML said.

Worth noting, thus far few corporates had talked about the impact from trade and tariffs and comments on the situation in China were "mixed".

"FAST noted that while pricing has been favorable, it has been lagging cost inflation due to tariffs. The read on China remains mixed: PPG and GT noted weakness in the automotive industry in China, while UAL and VFC continued to see solid demand. And TIF saw weak spending from Chinese tourists this holiday season, but strong growth in mainland China."

As for the partial US federal government shutdown, it had also only had a limited impact so far, but the related risks would grow as it dragged on, the analysts said.