Every few months, you may hear the phrase “we’re entering earnings season” as you read financial news.
But what exactly is “earnings season” and why is it important to Wall Street?
Earnings season is the period of time when a majority of publicly traded companies release their quarterly financial reports. Companies often go into great detail about the forces that influenced their business for the prior three months, and some may provide guidance about what lies ahead.
Typically, earnings season starts several weeks after the calendar quarter comes to a close. For example, earnings season for the second quarter starts in mid-July. The majority of companies are expected to release their earnings over the next six weeks. In the calendar-quarter that ended on March 31, 2020, 90 percent of the companies in the Standard & Poor’s 500 reported financial results by May 15, 2020.1
For years, the nation’s largest banks have kicked off earnings season. Banks are an important economic bellwether since they touch every part of the U.S. economy.2
Following the banks, a wide variety of individual companies start to release results. Wall Street analysts prepare forecasts for many companies, and investors may reward companies that report numbers above expectations, or lose confidence in those that come in below the consensus.
A company’s stock may not always react in the way you would expect following some reports. A company can report poor results, but if they weren’t as bad as investors feared, the stock may go up. On the other hand, if a company beats analyst expectations, but not by as much as investors had hoped, their stock price can suffer. Further, if a company provides guidance for the upcoming quarter and year, that can often play an even bigger role in the stock price movement than results of the prior quarter.
Despite the amount of headlines a lot of these earnings reports generate, it is important to not focus too much on these results alone, as they provide only a short-term snapshot of a company’s performance. Further research should always be done before considering an investment, but hopefully you will now understand what is meant by “earnings season”.
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
1. FactSet.com, May 15, 20202. MarketPlace.org, July 13, 2020