Why did the stock price drop despite the earnings report exceeding expectations? Goldman Sachs: Investors are focusing on other things
Although the earnings season in the third quarter in the United States performed strongly, with about two-thirds of companies exceeding profit expectations, the stock price reaction has been muted. Goldman Sachs believes that investors' focus has shifted to future prospects, particularly whether the massive investments in AI can be converted into profits. Trade frictions and increasing credit risks have made the market cautious, and "good performance does not equal rising stock prices" may become the new normal
Despite U.S. companies delivering a strong earnings season report card, investors seem unconvinced. Companies that exceeded analysts' expectations did not see their stock prices receive the boost they deserved.
According to Goldman Sachs' analysis, investors are shifting their focus from the excellent performance already reported to the more uncertain future outlook, particularly examining whether the massive investments in artificial intelligence can translate into actual profits. This cautious sentiment has led to a significant failure of the historical pattern of "earnings beats leading to stock price increases" this season.
The latest data shows that among the S&P 500 constituents that have reported earnings, about two-thirds exceeded market expectations, driving a year-on-year growth in overall profits for the third quarter to 8%, higher than the previously forecasted 6%. However, after the earnings reports were released, these companies' stock prices on average only outperformed the S&P 500 index by 32 basis points, far below the typical historical level of about 98 basis points.
The Goldman Sachs portfolio strategy team, led by David Kostin, believes that against the backdrop of ongoing volatility caused by U.S.-China trade tensions and recent credit issues among regional banks in the U.S., investors are more focused on companies' future profitability than ever before. In other words, the market's focus has shifted from "how well did you do" to "how well can you do in the future."
The "Failure" of Earnings Season: Strong Performance Fails to Drive Stock Price Increases
This earnings season has been remarkable. According to Goldman Sachs' report, among the S&P 500 constituents that have reported earnings, about two-thirds exceeded expectations. In terms of the frequency of earnings surprises, this is one of the best earnings seasons of the century, second only to the economic reopening period after the pandemic at the end of 2020. Notably, this strong growth is driven by both sales and profit margins.
However, the market's reaction has been unusually muted. Data shows that companies that released earnings above expectations had a relative performance significantly weaker than historical averages on the days following their earnings reports. Goldman Sachs pointed out that investors may have already anticipated these strong performances and believed that the previously widely predicted consensus of 6% earnings growth was "too conservative" or "unrealistically low." This narrowing of expectation gaps is one reason for the muted stock price reactions.
Why did strong performance fail to ignite market enthusiasm? Goldman Sachs believes the answer lies in investors' gaze having moved beyond the third-quarter reports, focusing on what lies ahead. Strategist David Kostin and his team stated that in an environment of ongoing macro uncertainty, investors are more focused than ever on companies' forward guidance.
The report specifically mentioned the market volatility triggered by trade frictions and the credit crisis among U.S. regional banks, which has heightened investors' concerns about the future economic and corporate profit outlook.
AI Spending Becomes the Focus, but Profitability is Key
Goldman Sachs' report reveals another core focus of the current market: the AI capital expenditures of large technology companies. Data shows that the capital expenditures of "super-large" companies continue to exceed the expectations of investors and analysts. For example, at the beginning of 2025, the market predicted these companies' capital expenditures for 2026 to be $314 billion, but this figure has now soared to $518 billion The report presents a crucial observation: “Investors' acceptance of capital expenditure growth depends on the strength of earnings growth and the perceived ability to monetize AI investments.” Goldman Sachs stated that Alphabet's stock price rose due to an upward revision of its net profit guidance for 2026; in contrast, Meta Platforms saw its stock price decline after its earnings report due to relatively stable guidance for 2026.
Despite cautious investor sentiment, some positive signals are still being conveyed at the corporate level. Among the 49 companies that have released fourth-quarter earnings guidance, nearly half have provided guidance above analyst expectations. This trend has led the market to raise its overall earnings per share (EPS) forecast for the S&P 500 index in 2026 by 2%, to $308.
Additionally, the application prospects of AI also show positive momentum. Since the beginning of this month, half of the companies that have released earnings reports mentioned the potential for efficiency improvements through AI, a moderate increase compared to the second quarter
