With major companies across the world poised to report their earnings and sales, traders gear up for interesting times
Earnings season is one of the busiest times for traders because it provides ample volatility and price movements for almost all companies that come out with results. This happens four times a year and is eagerly anticipated by the investing community, as it provides measurable data and hard facts about company performance – suitable conditions for making a judgment call on where stocks are headed.
The whole ruckus comes from the fact that publicly traded companies have to report their sales and earnings results (hence the name) to the Securities and Exchange Commission SEC and the general public every three months of the year. This happens approximately two weeks after each respective quarter ends, so the action comes in the middle of every January, April, July and October and lasts for several weeks.
The weeks before the reports are known as the “quiet period.” During it the managers and owners of the respective companies can’t share information to any investors before the numbers hit the newswire. There is also a similar restriction concerning insider trading called the “blackout period.”
As a general rule, corporations report before the markets open or after they close, so that as many investors as possible can react to the data at the same moment and prepare for trading itself. On occasion some companies reveal their numbers during trading hours, quite often to demonstrate confidence, and this gives traders a real-time opportunity to trade with some of the highest possible volumes.
The direction of prices is determined by how the results compare to the predictions and guidelines of the companies themselves, as well as those from analysts and managers. There are three outcomes for this – either the results are above target (overperform), below target (miss) or are in line with predictions (a hit).
Usually they have the logical effect – if above or on target, the prices go up and vice versa. But sometimes things can go the other way around, because of some other bit of negative information outside the results. Examples are lowered future guidance for future results, product recalls or anything else signaling weakness.
Typically the season begins with some of the heavyweights – JP Morgan Chase, United Health Group and Intel (all available in Trading 212 PRO). They are seen as bellwether companies because of their size and connections in their industries and the economy as a whole. They are a prime example of how the results of single companies can affect whole indices like the Dow Jones, as well as other companies from the same sector.
There are many ways to play the earnings season – from pure prediction of price moves, to looking at one company and taking it as an indicator for another one. All this can provide both an opportunity and risk, so remember not to throw yourself at everything that moves without proper research.
Citigroup and Intel come out with their earnings reports today after market hours with JP Morgan already having theirs released.