How Earnings Season Affects Stock Prices
Financial instruments differ and so are their earnings. The financial engineering that has been put into stocks and innovation is not only expansive but also has made the calculation of returns less obvious.
However the earnings season as a whole refers to the time window when stocks announce their earnings results and release their financial reports. What these companies earn is largely related to the profits earned by the company and how much has been appropriated to those stocks. In the financial markets, the profit made by the companies is what is refereed to as the earnings. As part of the capital markets regulation, these companies are required to clearly earmark the part of the earnings attributable to the different instrument holders.
In the United States, the Securities and Exchange Commission requires companies that are publicly listed to give a comprehensive report of their earnings at least four times a year, also known as quarterly. This is very important as it gives those that own the stock shares a clear view of how the company has been operating and its value.
These earnings reports are typically not published exactly at the end of the calendar month of any given quarter but rather are published a month after the current quarter has ended. This makes most companies publish their earnings in January, April, July and October. Thus earnings season happens four times per year and it is in these months. The general rule leading what a company should consider when setting their financial year dates is typically based the rate of activity. The end of the financial year is normally characterized by low activity and this makes it possible for companies to even utilize the full earnings for the year without fear of leaving potential numbers out of the bottom line. This has made most companies experience overlaps between calendar years and financial years.
One of the primary benefits of the earnings report season is that it gives all the market participants a chance to peer back in an attempt to determine how the companies concerned are performing. Since all companies have quarterly and yearly outlooks, the earnings seasons is again a moment to reflect on the variances and deviations between the projections made and the actual results reported. It is to be understood that companies whose earnings results meet and even surpass the analyst estimates made may experience a significant rise in their stock prices and hence their overall market value. On the contrary the market is also more than happy to punish any underperforming companies.
It is worth stating that the earnings season is a moment when the stock market can have significant changes in stocks prices and market surprises. The time between one earning season and the other can be mostly characterized by analysts' opinions and projections and this by extension helps affect the stock prices during these times. When the financial results are ultimately released, the stock can then very likely experience a move either up or down in price in response to such information.
Not many market traders can adequately predict the results during earning seasons. However the fewer who manage to do so can reap heavily from such moves during these months.
To conclude, the earnings seasons have imperative importance and are closely monitored by analysts and stock market participants alike. They highlight what the companies have been up to for the whole of the trading period.
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