BANK OF AMERICA: 'Beware of crowded stocks that miss' during the most impressive earnings season in 5 years

Only about a third of companies on the S&P 500 have reported earnings, and they are outpacing Wall Street's expectations so far.

"Overall, 68% of companies beat on EPS, 75% beat on sales and 53% beat on both - the highest proportion of top and bottom-line beats at this point during earnings season in over five years," a group of Bank of America Merrill Lynch equity strategists led by Savita Subramanian said in a note on Monday.

Although there's always pressure to demonstrate earnings growth and beat Wall Street's forecasts, the stakes are higher now with record stock prices and high valuations. This can be seen in the trend of investors increasingly punishing companies that miss on earnings.

Amid the most earnings beats in over five years, "beware of crowded stocks that miss," Subramanian said.

"Companies which missed expectations have underperformed by 6ppt on average the day following results, whereas those that beat have outperformed by a mere 50bp - larger alpha from misses is a trend we have noted in recent quarters as well," she said.

They wrote at the start of the busiest week of second-quarter earnings, with companies including Alphabet, Facebook, and Amazon set to report.