Earnings season is the period of time when publicly-traded companies release their quarterly earnings reports, as required by the Securities and Exchange Commission (SEC). Earnings season is important for investors because it provides insight into a company’s financial health and performance.
The financial results reported during an earnings season can help investors and analysts understand a company’s prospects, how a specific industry is performing, or the state of the overall economy. Knowing when earnings season is can help investors stay up to date on this information and make better investment decisions.
When Is Earnings Season?
Earnings season occurs four times a year, generally starting within a few weeks after the close of each quarter and lasting for about six weeks. For example, the earnings season for the first quarter, which ends on March 31, would typically begin in the second week of April and wrap up at the end of May.
Earnings season normally follows this timeline:
• First quarter: Mid-April through the end of May
• Second quarter: Mid-July through the end of August
• Third quarter: Mid-October through the end of November
• Fourth quarter: Mid-January through the end of February
However, not all companies report earnings on this schedule. Companies with a fiscal year that doesn’t follow the traditional calendar year may release their earnings on a different schedule.
Many retail companies, for instance, have fiscal years that end on January 31 rather than December 31, so they can capture the results from the holiday shopping season into their annual reports. Thus, these firms may report their earnings toward the end of earnings season, or even after the typical earnings reporting period.
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Why Is Earnings Season Important for Investors?
Earnings season is an important time for investors to track a company’s or industry’s performance and better understand its financial health.
During earnings season, companies release their quarterly earnings reports, which are financial statements that lay out the revenue, expenses, and profits. This information gives investors a better understanding of how a company is operating.
Moreover, earnings season is also when companies provide guidance for the upcoming quarters, sometimes during the company’s quarterly earnings call. This guidance can give investors an idea of what to expect from a company in the future and help them make more informed investment decisions, especially if investors use fundamental analysis to choose stocks.
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The following are some additional effects of earnings season:
You may notice fluctuations in your portfolio during earnings seasons because of stock volatility. The release of earnings reports can significantly impact a company’s stock price. If a company reports better or worse than expected earnings, for example, it may result in a spike or dip in share price. And even if a company surpasses expectations for a given quarter, its forward-looking outlook may disappoint investors, causing them to sell and drive down its price. For this reason, earnings season is often a period of high volatility for the stock market as a whole.
Many investors closely watch earnings reports to make investment decisions, especially traders with a short-term focus who hope to take advantage of price fluctuations before or after a company’s earnings report.
And investors with a long-term focus may pay attention to earnings season because it can give clues about a company’s future prospects. For example, if a company’s earnings are consistently increasing, it may be a suitable medium- to long-term investment. On the other hand, if a company’s earnings are decreasing quarter after quarter, it may mean that it is a stock investors want to avoid.
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State of the Economy
Earnings season can help investors and analysts get a better picture of the overall economy. If most earnings reports are coming in below expectations or companies are revising their financial outlooks because they see trouble in the economy, it could be a predictor of an economic downturn or a recession.
And even if the overall economy is not at risk of a downturn, earnings season can help investors see trouble in a specific sector or industry if companies in a given industry report weaker than expected earnings.
Earnings season may give investors a holistic view of the state of the stock market and economy and help them make better investment decisions than focusing on specific stocks alone.
Earnings season provides investors with valuable insights into the performance and outlook of specific companies, the stock market, and the economy as a whole. However, for most investors with a long-term focus, each earnings season shouldn’t be something that causes you too much stress. Even if some of your holdings spike or plummet because of an earnings report during earnings season, it doesn’t mean you want to make a rash investment decision based on a single quarter’s results. You still want to keep long-term performance in mind.
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