We’re only halfway through the earnings calendar but the market likes what it sees so far.

Share prices rose an average of 1.31% after earnings were announced across 32 companies under Morningstar coverage.

Narrow-moat Pinnacle Investment Management (ASX: PNI) led the pack rising 8.95% in the hours after it announced net profit grew more than 100%. On the other end, narrow-moat AGL (ASX: AGL) closed 5.53% lower on news net profits fell 34%.

Today’s Chart of the Week looks at how the market has reacted to the first batch of corporate earnings. To gauge market sentiment, we’ve measured the change in closing share price between the earnings announcement date and the day before.

This measure provides some insight as to whether market expectations were met or not. In some cases, markets react to future guidance rather than reported results, say Morningstar analysts.

Good news has outweighed bad over the last three weeks of earnings. Markets reacted negatively to 12 of the 32 companies from our calendar.

Positive reactions were concentrated in financial services. Pinnacle, QBE (ASX: QBE), Suncorp (ASX: SUN) and Genworth Mortgage Insurance Australia (ASX: GMA) all rose by more than 7%.

Strong results don’t always translate into a share market bump. REA Group (ASX: REA) announced double digit profit growth only for the share price to fall 4.7%. The share price drop reflected an extended valuation rather than bad news, says Morningstar equity strategist Gareth James.

“We expect the 5% share price fall following the result was more to do with the stock's valuation and 41% increase over the past year than disappointment with the result,” he says.

Of the ten companies with the most positive share market reaction, none are trading in a range Morningstar considers undervalued.

In the case of standout Pinnacle, impressive growth and bright prospects are already priced in, says Morningstar equity analyst Shaun Ler. The shares closed Monday at $15.64, a 30% premium to the fair value of $12.

Earnings will continue till the end of August and tens of companies must still report.

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