Market Reaction to Post-Earnings Pop Raises Concerns

Stocks surged at the open, but the move was short-lived as some market participants took profits. Despite strong earnings from mega-caps, the Nasdaq was only slightly up. The mixed reaction highlights concerns about the market's sustainability, with some analysts seeing the post-earnings pop as a bad sign.

Stocks surged at the open on July 2, 2025, but the move was short-lived as some market participants took profits. Despite strong earnings from mega-caps, the Nasdaq was only slightly up. The mixed reaction highlights concerns about the market's sustainability, with some analysts seeing the post-earnings pop as a bad sign.

The earnings season is ramping up, and investors are once again focusing on whether companies will beat or miss expectations. However, the major driver of share prices in 2025, and arguably in the long run, is found in the bond market [1].

Most investors are aware that quarterly earnings results are largely irrelevant for long-term investment returns, which are dominated by other factors. But fewer may acknowledge that even over shorter periods like 12 months, the real driver of share prices tends to be bonds rather than earnings [1].

The average earnings surprise of S&P 500 companies is an 7.2% beat of analyst expectations, reflecting the fact that the relationship between companies and investment analysts has evolved into an elaborate dance. Companies guide analysts to a low earnings number, and analysts typically don't question this guidance too much, as few want to get on the bad side of the companies they cover. When the results are released, companies can then handsomely beat "expectations", resulting in a share price rally [1].

However, a relatively small change in bond yields can create a large change in equity valuations. If 10-year government bond yields rise by 100 basis points, stocks tend to drop by 9% to 10% [1].

U.S. stock markets experienced sharp declines on August 1, 2025, as investors reacted to a wave of new tariffs unveiled by President Trump and further disappointment from a much-anticipated jobs report. The Dow Jones Industrial Average plunged 542 points (1.2%) to close at 43,588.58. The S&P 500 dropped 101 points (1.6%) to finish at 6,213.05. The Nasdaq also suffered steep losses amid a broader sell-off, driven in part by disappointing quarterly results from Amazon and other technology heavyweights [2].

The combination of new tariffs, a soft jobs report, and disappointing tech earnings culminated in significant declines for all major U.S. stock indexes, further shaking investor confidence and adding new risks to the economic outlook [2].

GSM Ferroglobe PLC, expected to report earnings of 2 cents per share on August 5, is also set to show a fall in quarterly revenue. The London United Kingdom-based company is expected to report a 13.6% decrease in revenue to $389.5 million from $451.05 million a year ago [3].

References:
[1] https://www.reuters.com/markets/us/equity-investors-are-focusing-wrong-data-this-earnings-season-2025-07-29/
[2] https://eurasiabusinessnews.com/2025/08/01/stock-market-today-dow-nasdaq-sp500-fall-on-tariff-blitz/
[3] https://www.tradingview.com/news/reuters.com,2025:newsml_L8N3TT32V:0-ferroglobe-plc-expected-to-post-earnings-of-2-cents-a-share-earnings-preview/