Earning season offers a great opportunity for stock traders to gain insight into the stocks they have invested in, while also providing context for potential stock price movements. Read on to learn more about what earnings season is, earnings announcement dates to know, and what to look for in an earnings report.
What is earnings season and why is it important?
Earnings season is a period in each fiscal quarter, typically lasting several weeks, when many of the largest publicly traded companies post their latest financial accounts. An earnings report consists of income, net income, earnings per share (EPS), and future prospects, among a host of other data points, which can help provide investors with late-night insights into the company’s current health and outlook. . This information can be found at sec.gov, various financial publications, and individual business websites.
Y season of arnings matters why it helps market participants gather information from the companies they are tracking along with the broader index. For example, a strong Apple earnings report (AAPL) could push bullish Nasdaq 100 futures investors up, a concept that will be discussed later when looking at Bellwether stocks.
Another thing that can accompany an earnings post is an earnings call. It is a conference between the company and analysts, the press and investors that analyzes the result of an earnings report and, in many cases, opens the space to questions from the company’s management. Such a review of reports can allow traders to access more information to better inform their decisions, although not all companies accept profit calls.
When is earnings season and when are the reports released?
Earning season generally takes place a few weeks after the end of each quarter (December, March, June, September). In other words, earnings seasons start around January-February (fourth quarter results), April-May (first quarter results), July-August (second quarter results), and October-November (third quarter results). ., With the unofficial start of the earnings season usually marked by the time that major US banks report their results.
This typically coincides with an increase in the amount of earnings being posted, while the unofficial end of earnings season is typically when Walmart (WMT) announces its earnings report.
3 things to look for in corporate earnings reports
re are a number of factors to consider when reporting corporate earnings. Traders need to be more aware of the performance of major stocks, understand the significance of an earnings recession on a given stock, and understand how a stock’s earnings announcement could affect a relevant index, depending on the weight of the given stock.
1) Return on Bellwether shares
When analyzing the earnings of the company, it is important to pay attention to ‘tame’ values that can be seen as an indicator of the trend of the macroeconomy. Although the status of a Bellwether warehouse can change over time, the largest and most-established companies are generally considered flagship stocks.
Examples of Bellwether Soy actions:
- FedEx (FDX) – ships products to consumers and businesses around the world
- Caterpillar (CAT) – world’s largest heavy machinery manufacturer has been considered a cornerstone given its extensive exposure to the construction, manufacturing and agriculture industries, particularly in China.
- 3M (MMM): Health indicator of the manufacturing sector
- Apple (AAPL): among the largest companies in the world. Important for key suppliers, especially chip makers.
2) Profit recession
An earnings recession is characterized by two consecutive quarters of year-over-year decline in corporate earnings. However, while earnings are a major factor in long-term stock market profitability, an earnings downturn does not necessarily coincide with an economic downturn.
chart below shows that in the past six earnings downturns observed in the United States, only two had coincided with an economic downturn. blue circles show where there has been an earnings downturn without an economic downturn, while the red circles represent where both the earnings and the economic downturn have occurred.
3) Earnings and stock index weighting
Traders should understand that when trading profits, some stocks will have a greater impact on the broader index based on their weight in the index. For example, when trading the Dow Jones, Boeing’s earnings release will be very influential on the index, while Visa will likely not be as influential, due to the weighting of 9.49% for the former versus 4.41% for the latter. , as shown in the table. below. This highlights the importance of paying close attention to the best stocks and how they can impact a broader stock index.
Trading During Profit Season: Top Tips
We have a detailed guide on how to trade earnings season, but the important things to remember are:
1) Know the “expected” results
Knowing what this ‘planned’ is with regards to revenue / sales and earnings per share (EPS) data is important because a company’s stock price reaction can often be determined by the amount of which they exceed / lack a set of analyst expectations.
2) Beware of surprise ads
Any surprise announcements that coincide with an earnings report can also have an impact on a company’s stock price. se could include share buybacks / share buyback programs and corporate guidelines.
3) Be aware of spillover effects between populations
An example of a spillover impact could be if an investor has shares of a chip maker in their portfolio (FOR EXAMPLE Dialog Semiconductor), Apple’s earnings could have a considerable impact on the shares. Consequently, it is important to evaluate related stocks as they can reveal the prospects for a sector, triggering potential industry turnover.
4) Consider the volatility of the buffer of an expected move
Calculating the “expected move” on a directional basis for a stock in reaction to the binary earnings event can be a daunting task. Alternatively, a view taken with volatility in mind can prepare investors for significant moves without positioning themselves on the wrong side of the bottom line.
Earning Season: Key Points for Stock Investors and Traders
In short, the earnings season can be a determining factor in a trader’s experience. Be sure to stay up-to-date on when key earnings for individual companies are released to proactively plan. Consider how top stocks, potential earnings downturns, and stock index weights can affect price movements. Monitor the expected results for each stock, consider potential higher volatility for analytical or strategic purposes, and understand how the performance of one stock may affect another (or an index as a whole).
Following these key tips can help the trader try to get through the earning season and navigate the period more consistently.
Earning Season FAQs
What does the earnings season tell us about the global economy?
impact of the earnings season on the global economy depends on a number of factors, from the performance of certain sectors to a number of fundamental factors. While the best companies that meet or exceed expectations may reflect a strong business environment, the stock market interacts with the economy in many different ways, so there is not always a predictable relationship between the two.
How is the earnings season affected by financial recessions?
Financial recessions can have a significant impact on the earnings season: reduced demand for products and services caused by a recession or longer recession of course, can mean that earnings are not meeting expectations in multiple sectors. However, perceived defensive actions such as those for basic needs or medical care, may better withstand recessions or perhaps even become more attractive in that context.
Does the results season have the same dates in the US and the UK?
When it comes to earnings season dates in the US and UK, British and European companies tend to get most of their earnings around two to three weeks after the US.
More information on actions
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