What is earnings season and why is it important for traders?
Earning Season is more than just a financial event; it's a new possibility to advance as a trader. This concentrated period of corporate reporting and increased market activity potentially allows traders and investors to hone and refine their skills, as well as learn how to manage risk more effectively in a dynamic market environment.
About earnings season
What is earnings season?
Earnings season is the period during which publicly traded companies release their financial results. It is marked by increased market volatility, with individual stock prices often fluctuating significantly in response to releases, especially for growing companies.
When does it start?
Earnings season starts a few weeks after the end of each quarter. Specifically, it begins in mid-April for Q1, mid-July for Q2, mid-October for Q3, and mid-January for Q4.
When does it end?
Earnings season typically ends about six weeks after it begins. Therefore, it concludes in late May for Q1, late August for Q2, late November for Q3, and late February for Q4.
When do companies report earnings?
Companies report their earnings four times a calendar year, usually two weeks after the end of each quarter. The release periods are as follows:
- Q1: (January - March): Mid-April to late May
- Q2: (April - June): Mid-July to late August
- Q3: (July – September): Mid-October to late November
- Q4: (October - December): Mid-January to late February
How often do companies report earnings?
Companies produce quarterly earnings reports four times a calendar year. Additionally, they release an annual earnings report that offers a more comprehensive overview of the company's performance for the entire fiscal year.
How long does the earnings season last?
Earnings season lasts approximately six weeks for each quarter, from the beginning of the release period to the end.
Why does earnings season matter for the markets?
Earnings season is important because it gives an insight into the health of individual companies and the entire market.
Quarterly and yearly earnings reports allow market participants to get an inside look at a company’s fundamentals and assess its progress over the previous period. This translates into actionable information for investors and traders, who, in reaction to the reports, adjust their positions and seek out new trading possibilities.
Earnings reports are also a source of analysis for financial media, which can shape market sentiment and potentially change trends.
A critical factor that influences market behaviour is how a company’s actual performance compares to what the market expected. Companies that meet or exceed expectations can boost investor confidence and raise the value of stocks. In contrast, disappointing reports can have the opposite effect.
Not all earnings reports carry the same weight. "Bellwethers," companies known for their strong financial performance and market leadership, serve as indicators of the overall economy's health and can significantly influence market trends. For example, earnings reports from blue-chip companies such as Apple (AAPL) and Amazon (AMZN) can serve as indicators of economic trends and a bellwether for the overall stock market.
Why is earnings season important for traders?
During earnings season, market participants get insights into the fundamentals and performance of the companies they are interested in. Traders can use this period to develop a new trading strategy, reevaluate their current investments, and understand how to gauge the economy and stock market.
Earnings releases may create potential opportunities for traders. By anticipating the impact on stock prices, traders can potentially speculate on subsequent moves in companies expected to beat or miss analyst expectations. Therefore traders must always consider the risks associated with such events and implement appropriate risk management strategies.
What to expect during the earnings season
Large financial institutions like JP Morgan Chase (JPM), Wells Fargo (WFC), Citigroup (C), BlackRock (BLK), Bank of America (BAC), and Goldman Sachs (GS) are usually among the first to release their quarterly reports.
This is followed by earnings reports from major technology companies including FAANG (Facebook (now Meta), Amazon, Apple, Netflix, and Google), as well as industry leaders like IBM (IBM), Coca-Cola (KO), and Mastercard (MA).
Strong performances by FAANG and banking stocks may lead to a more positive outlook, driving the market. Here is an overview of possible scenarios:
- The success of banks and FAANG companies might indicate strong economic growth and corporate health, which could lead to higher stock prices and more investment activity.
- A mix of positive and negative results might lead to volatility, with investors focusing on the information companies provide about their expectations for the future.
- If earnings fall short, it could lead to a temporary market dip, but also present opportunities for long-term investors seeking undervalued stocks. A pullback could be a chance to buy into fundamentally strong companies at a discount.
Trading tips during the earnings season
Earnings season shines a light on a company's financial health, revealing key metrics like revenue, earnings per share (EPS), and net income.
In contrast to a more comprehensive set of financial statements, including the balance sheet and cash flow statement, which might not be as easily accessible, earnings reports are publicly available through various channels, including the company’s websites, financial news websites, investor relations platforms, and brokerage account dashboards.
Traders can potentially benefit from analysing historical trends and identifying patterns from previous earnings seasons. While past performance isn't a guarantee of future results, analysing how a company's stock price reacted to previous earnings reports may provide valuable clues for traders. This approach is based on the idea that the market, to some extent, "rhymes" with history, even if it doesn't directly repeat itself. Market conditions, competitor performance, and other unforeseen events can all have an impact on the market's reaction to an earnings report.
Identifying patterns in how similar companies within the same industry performed during past earnings seasons can be valuable. For example, strong earnings reports from BMW leading to positive stock movements for competitors like Porsche suggest the market might react similarly to positive news from other automakers during this earnings season. This approach helps traders anticipate broader industry trends.
Earnings season can be a time of high market volatility. To navigate this, traders should remain agile and ready for breaking news. Developing a trading plan beforehand is crucial, including specific entry and exit points based on technical levels, stop-loss orders, and risk management techniques.
Trading the earnings season with Axi
Axi offers access to CFDs on hundreds of popular global shares, including JPMorgan (JPM), Goldman Sachs (GS), Tesla (TSLA), Alphabet (GOOGL), Apple (AAPL), Amazon (AMZN), Meta Platforms (MVRS), Microsoft (MSFT), EXXON (XOM), and Walt Disney (DIS).
In addition to the standard MT4 platform, we also provide tools designed to enhance a trader’s experience during the earnings season and beyond.
These tools include popular MT4 plugins like Autochartist, which delivers daily market scans, alerts, and volatility warnings. For advanced technical analysis, traders can integrate Trading Central, which offers adaptive candlestick patterns and dynamic indicators.
Axi also produces a library of free educational resources to bridge the knowledge gap, such as CFD trading guides, courses, eBooks, and articles.
Furthermore, Axi supplies the necessary tools to effectively manage trades. Axi traders use margin calculators to plan their moves, explore upcoming IPOs for potential opportunities, and leverage economic calendars to strategically time entries and exits.
Finally, Axi keeps traders informed with resources tracking upcoming exchange holidays, dividend forecasts, and future contract rollovers. Their exceptional customer service ensures traders have a reliable support system.
To stay informed about company earnings dates and trade the earnings season with Axi:
- Track Earnings: Use Axi's Earnings Calendar to stay ahead of the curve.
- Monitor & Analyse: Employ Axi's charting tools to monitor stock prices before, during, and after earnings, and analyse market expectations.
- Go Long or Short: Explore market movements with CFDs, leveraging Axi's reduced fees and tight spreads.
Conclusion
Earnings season can be an exciting recurring financial event, with the potential for price swings and volatility as market participants shape their strategy for the upcoming season(s). This volatility can create potential possibilities for traders with the right tools and knowledge. A dependable broker, offering a comprehensive toolbox and educational resources, can give traders the edge to navigate this dynamic period and make the most of the trading possibilities that might arise.
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This information is not to be construed as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product, or instrument; or to participate in any trading strategy. It has been prepared without taking your objectives, financial situation, or needs into account. Any references to past performance and forecasts are not reliable indicators of future results. Axi makes no representation and assumes no liability regarding the accuracy and completeness of the content in this publication. Readers should seek their own advice.
