The second quarter earnings reporting season has proved to be a difficult one for stocks. The earnings reports themselves have been strong.

According to FactSet, S&P 500 companies have grown their second quarter earnings 10.2% year-over-year. This marks the best earnings growth since the 11.6% rate recorded in the fourth quarter of 2011.

Yet, second quarter earnings reports have been unable to lift stock prices.

In fact, many companies have been punished after they beat analysts' EPS forecasts.

For example, shares of Halliburton (HAL), Hasbro (HAS), NetApp (NTAP​), and Regeneron Pharmaceuticals (REGN) dropped although the firms beat analysts' EPS forecast for the quarter and upped full-year EPS forecasts.

Disconnect between Earnings and Stock Prices

FactSet data show S&P 500 members beating analysts' second quarter EPS forecasts have seen their share price drop 0.3% in the four days surrounding the reporting date.

In comparison, S&P 500 members reporting positive earnings surprises over the past five years saw their share price rise 1.4% on average.

In fact, one has to go back as far as the second quarter of 2011 to see outperformers lose ground.

Shares of S&P 500 companies reporting positive surprises lost 2.1% during this four-day window in the second quarter of 2011.

Reason for the Disconnect

Stocks are in the eighth year of the bull market that began in March 2009. Many stocks can hardly be called a bargain after this extended run up in prices.

The average S&P 500 member trades at a forward 12-month P/E ratio of 17.4. This exceeds the average of 15.4 and 14.0 over the past 5-year and 10-year periods. High forward 12-month P/E ratios imply high investor expectations. Companies, in turn, find it challenging to meet or exceed such high expectations.

Protecting Your Money after a Tough Earnings Season

By most measures, U. S. economic growth has been tepid in 2017. The difference in yield between two-year and 10-year Treasury bonds, an indicator of the overall health of the economy, has narrowed to 87 basis points from 125 basis points at the start of the year.

Overseas economies are growing faster. U. S. companies too are benefiting from stronger growth abroad.

In the second quarter, S&P 500 companies with more than 50% of sales outside the U. S. grew earnings 14.0% compared to the 8.5% growth in earnings achieved by companies with more than 50% of sales within the U. S. Looking ahead, analysts expect S&P 500 companies with higher global revenues to grow earnings faster than those with lower global revenues.

In this milieu, it makes sense to stay conservative in investment selections and look globally for growth.