The Impact of COVID-19 Cases on S&P 500 Firms' Response to Quarterly Earnings Announcements

Abstract

This study examines the relationship between macro-level COVID-19 news and the stock market's processing of firm-level earnings announcements among S&P 500 companies. Contrary to the prevailing theories positing that macro-news diverts attention from firm-specific developments, our findings suggest a contradictory enhancement of market sensitivity to earnings information during the pandemic. We observe that the market's immediate reaction to earnings surprises, as measured by cumulative abnormal returns (CAR) 0,1, does not significantly deviate across sectors in the presence of COVID-19 news. However, in the health sector, the sensitivity to earnings news is 3.06 times higher, implying an increased investor focus on firm-specific information. Moreover, the long-term CAR (2,61) investigation indicates a 71% amplification of the market's response to earnings surprises during the pandemic, demonstrating a nuanced dynamic where macro-news events, rather than obscuring, may indeed sharpen the market's attention to corporate announcements. These counterintuitive results, suggesting a 17% stronger sensitivity on days with macro-news announcements, suggest a complementary rather than substitutive relationship between macro-news and micro-level information processing. Our findings contribute to the literature on market efficiency and investor behaviour by challenging the conventional understanding of information assimilation in times of macroeconomic stress.