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What is Earnings Season

  • April 20, 2021
    Earnings season provides a great opportunity for equity traders to
    gain insight on stocks they have invested in, while also offering
    context to potential share price moves. Read on for more on what
    earnings season is, earning announcement dates to know, and what to look
    for in an earnings report.To get more news about WikiFX, you can visit wikifx.com official website.



    WHAT IS EARNINGS SEASON & WHY IS IT IMPORTANT?

      Earnings season is a period each fiscal quarter, usually lasting
    several weeks, where many of the largest listed companies announce their
    latest financial accounts. An earnings report consists of revenue, net
    income, earnings per share (EPS) and forward outlook, amongst a bevy of
    other data points, which can help to provide investors with insight
    relating to the current health and outlook for the company. This
    information can be found on sec.gov, various financial publications, and
    individual companies' websites.



      Earnings season is important because it helps market participants
    glean information from the companies that they are monitoring along with
    the broader index. For example, a strong Apple (AAPL) earnings report
    may see investors bullish on Nasdaq 100 futures, a concept discussed
    further below when looking at bellwether stocks.



      Something else that can accompany an earnings release is an
    earnings call. This is a conference between the company and analysts,
    press and investors which discusses the outcome of an earnings report
    and, in many cases, opens the floor for questions to company management.
    Such scrutiny of the reports can enable traders to access more
    information to further inform their decisions, although not all
    companies hold earnings calls.



    WHEN IS EARNINGS SEASON & WHEN DO REPORTS COME OUT?

      Earnings season takes place typically a few weeks after each quarter
    ends (December, March, June, September). In other words, earnings
    seasons begins around January-February (Q4 results), April-May (Q1
    results), July-August (Q2 results) and October-November (Q3 results),
    with the unofficial start of earnings season usually marked by when the
    major US banks report results.



      This typically coincides with an increase in the number of earnings
    being released, while the unofficial end of earnings season is usually
    around the time that Walmart (WMT) announces its earnings report.



    3 THINGS TO LOOK FOR IN COMPANY EARNINGS REPORTS

      There are a number of factors to look for in company earnings reports.
    Traders should be most mindful of the performance of the largest
    ‘bellwether’ stocks, understand the significance of an earnings
    recession in a given stock, and grasp how a stocks earnings announcement
    might impact a relevant index, depending on the weighting of the given
    security.



      1) Performance of bellwether stocks



      When analyzing company earnings, it is important to look out for
    ‘bellwether’ stocks which can be seen as a gauge for the performance of
    the macro-economy. While the status of a bellwether stock can change
    over time, the largest and most-established companies are typically
    considered a bellwether stock.

    An earnings recession is characterized as two consecutive quarters of
    year-on-year declines in company profits. However, while earnings are an
    important factor in stock market returns over the long term, an
    earnings recession does not necessarily coincide with an economic
    recession.



      The chart below shows that in the past six earnings recessions
    witnessed in the US, only two had coincided with an economic recession.
    The blue circles show where there was an earnings recession without an
    economic recession, while the red circles represent where both an
    earnings and economic recession occurred.

      Traders should understand that when trading earnings, certain stocks
    will have a greater impact on the wider index according to their index
    weighting. For example, when trading the Dow Jones, Boeing releasing its
    earnings will be highly influential on the index, while Visa likely
    won‘t be as influential, due to the former’s 9.49% weighting compared to
    the latters 4.41%, as shown in the table below. This highlights the
    importance of paying close attention to bellwether stocks and how they
    may impact a broader equity index.