What stands out this earnings season? Companies that deliver good news don’t see much gain. Stocks that deliver bad news see LOTS of pain!

Consider these figures from FactSet Research: Two-thirds of S&P 500 companies had reported second-quarter earnings through last Friday. Roughly 82% of them reported a positive surprise on earnings per share. Blended profits are up about 10.3% year-over-year, which puts us on track for the third straight quarter of double-digit earnings growth.

Good...right? But look at the first MoneyShow Chart of the Day. You can see that positive surprises only earned the company in question an average stock price gain of 0.9%. That’s a bit below the five-year average of +1%.

Chart 1: Good News Not Really Rewarded

Source: FactSet Research

Now, take a look at the second MoneyShow Chart of the Day. It shows what has happened to companies who MISSED forecasts. On average, their shares tanked 5.6%. That’s more than DOUBLE the average loss over the past half-decade.

Chart 2: Bad News Gets Punished – Big Time!

Source: FactSet Research

What does it “mean” when good news basically earns you a participation trophy...while bad news gets you kicked in the teeth? Markets are overbought, extended, and ALREADY pricing in a lot of good news.

When the market is walking a highwire like that, you have to play  your cards closer to the vest. Especially if you’re TRADING on a shorter-term timeframe.

Yes, you can still catch big rallies in top performers like Palantir Technologies Inc. (PLTR) or Meta Platforms Inc. (META). But you can also take BIG hits when one of your companies misses the highest of expectations – like we saw with Amazon.com Inc. (AMZN). 

One last thing I’d highlight from my “Fireside Chat” with Thomas Hayes of Great Hill Capital yesterday: He suggested focusing on stocks that have a valuation cushion. The more undervalued they are...the less extended they are...and the less they’ve been “noticed” by Wall Street...the more likely they are to hang in if markets pull back – and outperform as we head into year end. Food for thought.

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