Earnings season for the last quarter in 2016 has been underway for several weeks now since Alcoa reported on January 24. With 62% of the S&P 500 companies finished reporting Q4-2016 results, their year-over-year revenue and earnings growth comparisons are the highest since Q3-2014. 70% of those reporting have exceeded industry analysts’ earnings estimates, averaging a 7.9% earnings gain. These types of numbers are some of the best since the financial crisis began, but you wouldn’t really know it from the behavior of equity prices.

This type of earnings growth closes the door for good on the energy-driven earnings recession that started in late 2014. However, data from Bank of America Corp show that companies whose top-and bottom-line results beat analyst predictions gained less than 1 percent the next day, less than half the average since 2000. And trading activity has dropped, with average monthly stock volume near the bottom over the last two years. Thin trading usually leads to increases in volatility, but that isn’t the case right now. The S&P 500 has gone 83 days without a down move of 1%, the longest such streak in more than a decade. So what is going on?

Several things explain the relative earnings indifference. First, the equity rally following the election and leading into earnings season was large, 6% for the S&P 500 in the three months before earnings reports began, which is more than three times the average over the last decade. It is natural for the market to take a breather. Second, earnings are taking a backseat to geopolitical concern with a new, more vocal, administration. With all the topics raised since the inauguration barely two weeks ago, some unknowns have fallen into place, but there is arguably more uncertainty than ever before. Third, a growing realization has settled that fiscal policy expectations which supercharged the rally may take longer to implement than originally thought. That will temper enthusiasm to notch earnings expectations higher yet, acting as another brake on stock prices for the moment.

No matter your views, the day-to-day political drama is more attention-grabbing than ever before. For us, that matters little except as it relates to how changes in the law can impact the companies we own for our clients. It all goes back to earnings, which are shining brightly right now. And our outlook for growth vs value stocks in 2017 continues to unfold. While the broader market has been sanguine so far, the performance contrast within is enlightening. Growth stocks are up more than 5% while value stocks are up just over 1%, a reversal from what was seen in 2016 when value stocks outperformed growth by more than 10%. We think once the political dust from a frantic first 100 days begins to settle, the return of earnings will command the attention it deserves and continue the divergence as the year progresses.