Bob’s Journal 8/14

The Latest Earnings Season Was Different in Several Ways

Earnings season for the second quarter is winding down, and the results so far have been exceptionally good.

Over the last 10 years, on average 65.7% of companies exceeded earnings expectations each quarter. But in the second quarter of 2025, 78.9% of companies reported earnings above estimates.

Sales estimates were exceeded by 62.3% of companies on average over the last 10 years. In the latest quarter, 76.4% of companies beat their sales forecasts.

Only 47.0% of companies topped both sales and earnings forecasts in the same quarter over the last 10 years. But in the second quarter of 2025, 64.4% of companies beat both estimates. The data are from Bespoke Investment Group.

Yet, returns to stock investors didn’t reflect the improved performance.

In the last 10 years, a stock would rise an average of 1.4% on the trading day after the company announced that it beat either the revenue or earnings estimate. But in the latest quarter, the average stock gain for a company exceeding at least one estimate was only 1%.

Companies that exceeded both estimates saw their stocks jump 2.3% on average in the last 10 years. But this year the average gain was only 1.7%.

It appears that the good news was mostly reflected in stock prices before the earnings announcements.

But underperformance by companies wasn’t already reflected in stock prices before earnings announcements. Stocks of those companies were punished this year.

In the past 10 years, companies that reported lower-than-expected earnings fell 3.4% on average, while companies that missed revenue estimates declined 2.3% on average. Companies that reported less than both estimates saw their stocks fall 4.7%.

In the latest quarter, earnings disappointments caused a stock to drop 5.5% on average and revenues below estimates led to a 3.9% decline in a stock’s price, on average. Missing both estimates led to a 6.3% stock tumble.

Another interesting change in the latest earnings season is how stocks have reacted to changes in guidance by companies.

Since 2001, companies that improved their guidance for future quarters saw their stocks rise an average of 4% on the next full trading day. Stocks of companies that reduced their guidance had their stocks decline 5% on average.

In the earnings reports for the second quarter of 2025, stocks that improved their guidance had their prices increase by 4.23% on average.

But stock prices of companies that reduced their guidance had their stock prices tumble by an average of 10.19%.

It’s apparent that stocks are priced optimistically, and investors know that. Companies that exceed expectations don’t see as much improvement in their stock prices as in the past. Companies that disappoint expectations have their stock prices fall more than in the past.

The Magnificent Seven Move the Indexes

The Magnificent Seven stocks have been without doubt the key drivers of stock returns and valuations the last couple of years. There also are studies that conclude those seven stocks are major drivers of the economy.

Their prices have increased so much that the “Mag Seven,” as they’re sometimes also called, account for a large portion of the stock indexes.

The Mag Seven are stocks of very large growth companies, mostly in the technology sector, that have dominated the economy and stock markets: Alphabet Inc. (GOOG), Apple (AAPL), amazon.com (AMZN), Meta Networks (META), Microsoft (MSFT), Nvidia (NVDA) and Tesla (TSLA).

Because of those stocks, the technology sector accounts for 34.45% of the S&P 500 Index. That’s just below record highs. The second-largest sector is financials, which is only 13.53% of the index.

When the Mag Seven are excluded and only the other 493 stocks are examined, technology isn’t even the largest sector.

Financials are the largest sector with 21.1% of the revised index. Technology’s weight is 19.4%, followed by health care at 12.9% and industrials at 12.5%.

AMZN is in the consumer discretionary sector and dominates it. When we look at the regular S&P 500, consumer discretionary is the third-largest sector at 10.4%. But exclude the Magnificent Seven, including AMZN, and consumer discretionary is the sixth largest sector with 7.2% of the index.

If you want to invest only in the stocks that have dominated the index, consider an exchange-traded fund, such as Roundhill Magnificent Seven (MAGS).

But if you want to reduce exposure to those highly valued stocks, one option is Invesco S&P 500 Equal Weight (RSP).

Retirement Medical Costs Rise Another 4%

Someone who retires at age 65 in 2025 should expect lifetime retirement medical expenses to be 4% more than a year earlier, according to the latest annual Retiree Health Care Cost Estimate from Fidelity Investments.

The total estimated lifetime medical expenses will be $172,500. In the first study’s estimate in 2002, the estimate was $80,000.

The projection is an average. People with longer life spans or below average health are likely to spend more. While others will spend less than the average.

The study estimates out-of-pocket costs for those enrolled in original Medicare with Medicare supplement and Part D insurance policies. It includes premiums, copayments and uncovered costs, including dental and vision care. It does not include long-term care.

One of the points of the study is that many people either don’t include medical expenses in their retirement spending projections or underestimate the expenses. About 37% of pre-retirees believe that Medicare will cover all their retirement medical expenses, which isn’t the case.

Another point of the study is to scare people into saving extra money for retirement and investing it. But keep in mind that the costs are spread over 20 or more years of retirement, with most of the spending broken into monthly installments for premiums. Many people will spend similar amounts for cable television or other recurring living expenses.

The Data

Optimism among small business owners increased again in July, according to the National Federation of Independent Business Small Business Optimism Index.

The index rose to 100.3 from 98.6 in June. July’s level is the highest in five months and the second consecutive month the index was above the long-term average of 98.

The Consumer Price Index (CPI) increased by 0.2% in July after rising 0.3% in June. Over 12 months, the CPI rose 2.7% higher through both July and June.

The core CPI, which excludes food and energy prices, rose 0.3% in July and 0.2% in June. The 12-month increase in the core CPI was 3.1% through July and 2.9% through June.

Consumer credit outstanding increased by 1.8% in June. There was a 1.0% decline in revolving credit (which is mostly credit card balances) and a 2.7% rise nonrevolving credit (which is mostly vehicle and student loans).

New unemployment claims increased by 7,000 to 226,000 in the latest week.

Continuing claims, which lag a week behind new claims, rose to 1.974 million, the most since November 2021, from 1.936 million.

The Markets

The S&P 500 rose 2.34% for the week ended with Tuesday’s close. The Dow Jones Industrial Average gained 0.80%. The Russell 2000 increased 2.70%. The All-Country World Index (excluding U.S. stocks) added 2.63%. Emerging market equities advanced 2.17%.

Long-term treasuries lost 1.56% for the week. Investment-grade bonds fell 0.20%. Treasury Inflation-Protected Securities (TIP) declined 0.21%. High-yield bonds gained 0.24%.

In the currency sector, the U.S. dollar lost 0.58%.

Energy-based commodities dropped 0.49%. Broader-based commodities were unchanged. Gold declined 0.93%.

Bob’s News & Updates

A recent review on amazon.com of my latest book said, “Carlson is a unique national Asset while alive! Get the book, dude!” Look for “Retirement Watch: The Essential Guide to Retiring in the 2020s” (Regnery Capital: 2023) at amazon.com, barnesandnoble.com, booksamillion.com and regnery.com.

My previous book, “Where’s My Money: Secrets to Getting the Most out of Your Social Security,” is receiving mostly five-star reviews on Amazon for telling you clearly what your benefit options are in different situations and how to determine the best choice for you. You can find it on amazon.com or Regnery.com.

The number of regular viewers for my Retirement Watch Spotlight Series continues to increase. You should sign up because I make in-depth presentations of key retirement finance topics. You can watch these online seminars from the comfort of your home or office at times you choose. To learn more about my new Spotlight Series, click here.

A recent five-star review of my book, “The New Rules of Retirement” on amazon.com said, “A complete retirement guide! One of the best books on this topic!” Click for more details about the revised edition of “The New Rules of Retirement.”

If you’re interested in my books, check my amazon.com author’s page.

I’m a senior contributor to the Forbes.com blog. You can view my contributor page here.