Trading During US Earnings Season: What You Need To Know

For investors in the world’s largest stock market, the earnings season is one of the most closely-watched events when listed companies report their quarterly earnings report.

What is the US earnings season?

Officially called a Form 10-Q, public companies are required by the market regulator–the Securities and Exchange Commission (SEC)– to release their earnings report to shareholders and the public every three months.

During the US earnings season, companies will divulge key information that give investors more clarity on the state of the business over the reported period.

This includes key metrics such as revenue growth, gross margins, operating margins, and guidance on future growth. Investors often look at these reports to gauge market sentiment and adjust their trading strategies accordingly.

Key Points

• Earnings season is a critical period for investors to evaluate companies’ quarterly financial performance, including crucial metrics like revenue and profit growth, which can significantly influence stock prices.
• Typically following the calendar year, earnings reports are released within two months after each quarter’s end, with some companies operating on fiscal quarters and years that do not align with the calendar.
• The heightened volatility during earnings season offers trading opportunities, especially for short-term traders, but also necessitates a robust trading plan to manage risks effectively.

When is the US Earnings Season?

For a large number of public companies in the US, the quarterly earnings reporting periods tend to follow the calendar year.

So, the release of results usually falls within the two months after the end of each calendar quarter.

For example, for a company that follows a traditional January to end of March quarter, it will usually release its earnings numbers anywhere from late April to the end of May.

However, some companies differ in that they have earnings periods that don’t adhere to a traditional calendar quarter. These companies will have “fiscal quarters” and “fiscal years” specific to that firm.

Take Zoom Video Communications for example. The video-conferencing company has a first quarter fiscal year 2023 (Q1 FY2023) earnings period that covers the three months ending 30 April 2022.

Hence, the company reported earnings for that period in late May this year.

Why Do Earnings Matter?

Earnings season is important for a number of reasons. Primarily, it provides investors (and analysts that cover the stocks) an opportunity to analyse and reassess the prospects of businesses reporting.

As mentioned earlier, this is based on the latest numbers, such as their net income but also–more importantly–forward guidance that is provided by management.

This relates to what management says it expects to see on a variety of business metrics.

Ranging from revenue growth to operating margin, these numbers are guided for the upcoming quarter as well as the full fiscal year.

In reaction to these earnings numbers and management guidance, market expectations can drive share prices to move dramatically.

How does the US earnings season impact trades? 

Earnings season is a period when there tends to be more volatility in the stock market. 

The release of company earnings also take place outside of market-trading hours. 

As a result, a stock’s reaction (up or down) could be amplified based on the lower liquidity in the market during pre-market and post-market trading. 

For traders focusing on individual stocks, understanding how market sentiment shifts can offer a crucial edge during this time.

Key Considerations During Earnings Season for New Investors

Earnings season offers valuable insights into the financial stability of key companies and sectors. For those new to investing, here are a few important elements to monitor:

• Influential Market Leaders – Earnings reports from major players like Apple, FedEx, and Caterpillar can provide clues about broader economic trends.
• Profit Declines – Consecutive quarters of shrinking profits can indicate challenges within companies, though it doesn’t automatically signal a recession in the wider economy.
• Index Movements – Earnings updates from the largest companies within indices such as the S&P 500 or Dow Jones can significantly impact overall index performance, driving sharp shifts.

Tips for Investors and Traders When Analysing Earnings Reports

• Track Analyst Expectations – Understanding Wall Street’s expectations for earnings per share (EPS) and revenue helps gauge potential market reactions. Stock prices typically move based on how actual results align with these predictions.
• Tune into Earnings Calls – Many companies host a post-announcement conference call. Listening in can reveal management’s attitude and expectations, offering deeper insights into the company’s outlook.
• Pay Attention to Forward Guidance – A company’s projections for future performance are critical. Optimistic or cautious forecasts can have a big influence on the stock’s trajectory.
• Watch for Unexpected Developments – Earnings reports can come with surprises like mergers, executive changes, buybacks, or restructuring plans that might drive stock movements.
• Consider Sector-Wide Impacts – A strong or weak report from a leading company can often influence the performance of other firms within the same sector.
• Evaluate Profit Quality – Go beyond headline numbers like EPS and revenue. Assessing the sustainability and sources of growth gives a clearer picture of a company’s true financial health.
• Factor in Valuations – Stocks are often bid up ahead of earnings. Even strong results may not push a stock higher if it’s already trading at a premium.
• Prepare for Volatility – Earnings announcements can lead to significant price swings. Using options strategies or setting stop-loss orders can help manage the risk associated with these events.

Companies to look out for during the US earnings season

Investors should be on the lookout for large-cap and highly liquid stocks when the US earnings season comes around.

That’s because the combination of higher liquidity and more coverage from analysts, mean that the broader market gravitates towards them.

Some examples of these types of stocks include all the mega-cap tech stocks, such as:

• Microsoft
• Apple
• Meta Platforms
• Alphabet
• Amazon
• Nvidia
• Tesla

Other large-cap, blue-chip technology stocks (that are highly liquid) can also garner attention. These would include the likes of Salesforce.com, Adobe, and ServiceNow, among others.

In other sectors, large blue-chip companies like JPMorgan Chase, Johnson & Johnson, Starbucks, and Home Depot are also some of the stocks investors can keep an eye on.

Is Earnings Season A Good Time To Trade?

The US earnings season comes with opportunities to trade given the typical prevailing market conditions.

That’s mainly down to the event-driven trading sentiments derived from quarterly earnings report. 

Given management guidance and the broader macroeconomic conditions, how a stock price moves can create a lot of volatility for the broader market as well.

On the whole, volatility in the market is a positive factor for investors who have a short-term, trading-oriented focus.

Earnings results from one company can also impact the share price of peers that operate in the same sector. Therefore, it’s important to be aware of what events are driving share price movements.

How To Trade During the US Earnings Season Using CFDs?

A Contract for Difference (CFD) can be used by traders during the US earnings season to take advantage of opportunities that the market presents.

This is because investors have the ability to take long or short positions on stocks through CFDs stocks.

Finally, it’s crucial that investors focus on having a suitable trading plan during the US earnings season to properly manage the level of risk exposure.

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