Since the mid-January start of the new US earnings season, disclosed performance data from S&P 500 component companies shows that overall actual profits have significantly exceeded market consensus expectations. However, unmoved investors have delivered the worst stock price reaction following profit beats on record. In the view of analysts, the underlying logic is that global investors, at the start of the year, are finding the outlook for 2026—encompassing geopolitics, macroeconomics, monetary policy, and the role of fiat currency as a store of wealth—increasingly murky. Furthermore, the failure of some companies to issue or raise their 2026 performance guidance during earnings reports has led investors to sell on strength, making "buy the rumor, sell the news" seem like the default action. Although it is still the early stages of the US earnings season—with results from the Magnificent 7, which carry heavy weight in the S&P 500 and Nasdaq 100 indices, concentrated in late January to early February—the latest data compiled by Bloomberg Intelligence shows that approximately 81% of S&P 500 companies reporting so far have beaten Q4 profit expectations. Yet, their stocks have underperformed the benchmark index by an average of 1.1 percentage points—the worst relative performance for this period since the data series began in 2017. Among the disappointing components, shares of traditional US industrial leader 3M Co. fell sharply by 7% on Tuesday. Despite the company beating profit estimates, investors instead focused on its gloomy forecast. Wall Street financial giant State Street Corp. saw its shares drop 6.1% in a single day after reporting results and its future outlook, as weaker net interest income prospects overshadowed far better-than-expected quarterly earnings. Global streaming leader Netflix also fell around 6% in pre-market trading on Wednesday, primarily due to disappointing guidance from the company. With Netflix's official results release, the curtain has risen on the US tech giants' earnings season, but Netflix failed to deliver a positive start. As the chart above illustrates, investors in this earnings season are clearly not rewarding earnings beats—some stocks that exceeded expectations still underperformed the S&P 500. The chart data for Q4 earnings is current as of January 20th. It displays the relative underperformance versus the S&P 500, on the day of earnings release, for stocks that beat consensus EPS estimates. Buy the Rumor, Sell the News? This trend highlights just how high the market's "bet" on corporate earnings is during this US earnings season, largely because US stocks have been climbing to record highs since the start of the year. This pushed valuations above their long-term historical averages as Wall Street analysts adjusted earnings expectations ahead of the reporting period. Investors are now closely watching executives' commentary and guidance for clues about AI computing demand and consumer health—two key narratives underpinning the AI-powered bull market and the soft-landing scenario, both crucial for the broader US stock market rally. Given the extremely high valuation level of the S&P 500, any signs of weakening demand could potentially trigger significant stock sell-offs. In this earnings season, the incidence of "beating expectations" is widespread. However, against the macroeconomic backdrop of high S&P 500 valuations, interest rate/policy risks, resurgent tariff risks, and currency devaluation risks, the market's real hurdle has become "whether companies can raise their 2026 forward path/provide strong earnings guidance." Failure to do so easily triggers profit-taking, "selling the news" type reactions. "The bar for market upside is not beating consensus estimates. The bar is raising the forward path high enough to justify these elevated valuations in a market that remains sensitive to uncertainty around interest rates, fiscal, and monetary policy, and where valuations are already quite expensive," stated Aneeka Gupta, Head of Macroeconomic Research at WisdomTree. "In this environment, an 'earnings beat' without strong guidance becomes a 'sell the news' event." As former US President Donald Trump's renewed threats of tariffs on European countries fuel concerns about an escalation in global trade tensions, investors have also become more discerning towards a US stock market that is repeatedly hitting record highs in its third year of a bull run. Trump's aggressive rhetoric on tariffs and geopolitical situations triggered a global stock sell-off this week, casting a renewed shadow over prospects for global growth, geopolitics, macroeconomics, monetary policy, and fiat currency stability. This is also a key factor supporting the continued surge in gold and silver prices, extending their 2025 bull market trajectory. Furthermore, as the chart above shows, Wall Street analysts generally chose to lower US corporate earnings estimates just before results were announced, which undoubtedly lowered the genuine hurdle for beating expectations. Guidance is Paramount Although seasoned Wall Street forecasters generally maintain that US corporate profits should still demonstrate resilience, investors will scrutinize management commentary and guidance ranges for clues about consumer health and the continuation of the AI computing boom. Any signs of weakness in AI computing demand or consumer demand could be interpreted negatively, potentially leading to large-scale sell-offs, especially considering the S&P 500 currently trades at a forward P/E of about 22x, above its 10-year average of 19x. In contrast, Taiwan Semiconductor Manufacturing provided a model performance for this earnings season—beating earnings estimates and also providing guidance that exceeded market expectations. Why have storage chip stocks, centered on companies like Micron, been leading the US market this year? Primarily due to persistently strong demand for DRAM/NAND chips and what appears to be rampant price expansion for these product lines (e.g., DDR4/DDR5, enterprise SSDs). This is driven by the AI computing tidal wave pushing demand for memory chips and their importance for AI training/inference systems to unprecedented levels. Global AI computing demand continues to exhibit exponential growth trends, with supply struggling to keep pace with demand intensity, a point clearly evident in the exceptionally strong results reported by the "global chip king," TSMC, on Thursday. TSMC's Q4 gross margin surpassed 60% for the first time, net profit significantly beat estimates, and the company forecast full-year 2026 revenue growth nearing 30%. It also substantially raised its 2026 capital expenditure guidance to $52-$56 billion—both core guidance figures far exceeding market expectations. Additionally, TSMC management significantly raised its revenue CAGR forecast for its AI-related chip manufacturing business from the "mid-40% range" to the "mid-to-high 50% range." The exceptionally strong results and future guidance from the world's largest chipmaker spurred a broad rally in US chip stocks on Thursday, with memory chips and semiconductor equipment shares showing the strongest gains. The latest data compiled by Bloomberg Intelligence shows that during this US earnings season, companies missing earnings expectations have underperformed the S&P 500 by an average of about 3 percentage points on their reporting day. However, within Edmond de Rothschild, Nicolas Bickel, Head of Private Banking Investments at the firm, cautioned that with only about 9% of the S&P 500's total market capitalization having reported so far, it is still too early to draw definitive conclusions from the price reactions. "Despite a volatile start to the earnings season, we maintain a constructive and positive view on US equity markets," Bickel stated. "From now until the end of the earnings season, fundamentals are likely to replace geopolitical 'noise'." A Citigroup benchmark index indicates that just before Q4 US earnings were officially released, more Wall Street analysts opted to slightly lower their profit forecasts. While this sets the stage for another quarter of strong "beats," it also means S&P 500 constituents must significantly exceed expectations on both sales and profits, while also providing robust growth guidance, to impress increasingly demanding earnings season investors, according to a report from Morgan Stanley's renowned strategist Michael Wilson. "However, this earnings season is likely to resemble more a series of company-specific idiosyncratic events rather than a major driver at the index level," Wilson wrote in a report.