Markets care more about expectations than numbers

It's all about expectations.
Prior to the start of the second-quarter earnings season, investor relations departments and analysts massaged expectations downwards. The most obvious example is $Goldman Sachs(GS.US)$ — its woes in consumer banking, from its attempt to sell GreenSky to its talks to offload its Apple credit card and savings account products, were well publicized.
When Goldman reported a disappointing second quarter, then, it didn't take investors aback. Its shares even rose almost 1% on the news. Astounding, if you think about the bank's 58% fall in profits. But not that surprising, given that investors were prepared and were probably heaving a sigh of relief there wasn't more bad news.
Elsewhere, the strategy of managing expectations seems to be working. More than three quarters of S&P companies that have reported results have exceeded expectations, according to FactSet data. That reinforced hopes that the economy can elude a recession as inflation falls and rates remain high.
Major indexes eked out small gains on that sentiment. The $Dow Jones Industrial Average(.DJI.US)$ rose 0.31%, its eighth straight day of gains and longest winning streak since September 2019. The $Nasdaq Composite Index(.IXIC.US)$ was essentially flat and the $S&P 500 Index(.SPX.US)$ climbed 0.24%.
Thus far in July, the S&P has added 2.6%. By contrast, the small-cap Russell 2000 Index has risen almost 5% in the same period, CNBC's Darla Mercado and Gina Francolla noted. It's a sign that more firms are participating in the market rally, potentially giving stocks more room to grow.
Tom De Luca, senior researcher at Vanguard, concurs. "Investors are saying loud and clear that they expect the current stock market rally to continue," said De Luca. "Right now, short-term optimism is higher than we've seen since December 2021, right before the start of the 2022 bear market." $SPDR S&P 500 ETF(SPY.US)$ $Invesco QQQ Trust(QQQ.US)$