Traders show no mercy to US companies whose performance fails to meet expectations

Given that the U.S. stock market is at record highs, it is quite challenging for American companies to deliver performance that justifies high stock prices. Moreover, investors have little patience for any company that disappoints with its earnings report. Data from Bank of America shows that the market's punishment for companies that fail to meet expectations is harsher than before, with stocks that report both revenue and net profit below expectations lagging the average performance of the S&P 500 by 5.5 percentage points the following day. This magnitude is more than double the historical average and is tied for the second-largest since the bank began keeping records. Companies that exceed expectations see their performance the next day outperforming the benchmark by a margin lower than the historical average. "The reaction during this reporting period has been 'negatively biased,'" wrote Savita Subramanian, head of U.S. equity and quantitative strategy at the bank, in a report to clients on Monday, "The market's punishment for underperformance is far more severe than in the past."