Expectations Are the Reference Point: Why the Same Earnings Beat Can Barely Move One Stock and Rocket Another
Two companies can post similar earnings and see wildly different stock reactions, because the market prices the results against what it already expected, not against zero. A beaten-down name with low expectations can rocket on a beat; a beloved name priced for perfection can fall on a record quarter. Understanding that expectations are the reference point explains the magnitude of earnings moves, and explains why it is not an edge you can trade.