Final answer:
When a company's earning reports are below expectations, it is likely that the company's stock price will decrease due to investors' and analysts' view of the company's performance as disappointing and less promising.
Step-by-step explanation:
When a company's earning reports are below expectations set by an earnings forecast bench, it is likely that the company's stock price will decrease. This is because investors and analysts may view the company's performance as disappointing and less promising, leading to a decrease in demand for the stock. In turn, this decrease in demand can lead to a drop in the stock price.
For example, if a company was expected to earn $1 per share based on the earnings forecast, but only earns $0.80 per share in its report, this could be seen as below expectations. As a result, investors may sell their shares, causing the stock price to decline.
It's important to note that individual factors and market conditions can influence the stock price, so it may not always be the case that the stock price will decrease in this scenario. However, the general expectation is that the stock price will decrease when earning reports are below expectations.