What could be expected in this season’s Earnings Season? What are the prospects for the stock price? Volatility could be Expected in price of some top stocks
EARNINGS SEASON
The Earnings Season is the period in which all the major companies listed on the US Stock Exchange announce their quarterly results, which relate to the previous 3-month period. Earnings seasons take place in January, April, July and October. The big banks usually declare results first, which may give traders an early indication of whether the season is likely to be considered successful or not
The two most important figures that markets are watching out for in terms of measuring that success are the Earnings Per Share (EPS) and Revenue results. If they are higher than expectations, it is considered positive for that company, a below-expectations result is considered negative. The results and their expectations may impact the stock price of that company. As the results are revealed, the CEO (or senior figure) of the company will make a statement and take questions from the media. Quite often the CEO will provide information that could give some projection about expected future results. That information may also influence the stock price of that company.
JANUARY’S EARNINGS SEASON RESULTS
The previous earnings quarter (Q4) showed that 76.3% of companies listed on the S&P 500 reported earnings above analyst estimates. This is higher than the long-term average of 66.6% but is slightly lower than the most recent four-quarter average of 76.4%. However, a key indicator, growth of the S&P 500 companies was nearly 8%, compared to expectations of an increase of 1.2%. From this perspective, the previous season’s results were far better than expected.
Companies that easily beat expectations last season include a top current performer of the US stock market: NVIDIA. The company beat expectations by a wide margin and gave good guidance about the future of the AI chipmaker’s performance. Amazon, Meta (Facebook) and Microsoft also beat expectations. Netflix reported mixed results, but higher subscriber numbers and positive direction. Tesla, on the other hand, reported lower-than-expected earnings. Please note that past performance does not guarantee future results.
EARNINGS SEASON: THE IMPACT ON STOCK PRICES
While it’s difficult to calculate how much influence company results have on its stock price, the conventional wisdom is that if the company beats earnings expectations, it might influence its stock price higher. It’s important to note that when major stocks report much better than expected results earlier in the season, this tends to increase the optimism of other stocks in that sector, which may be expected to produce similar results. Better-than-expected earnings also have a positive effect on wider market sentiment. Please note that past performance does not guarantee future results.
STOCK PRICES AND EXPECTATIONS FOR THIS SEASON
Stock prices have rallied in recent weeks, with both the S&P 500 and the tech-dominated S&P 100 hitting record highs. While some of this optimism is due to the state of the US economy and the prospect of lower interest rates, it’s also possible that some investors are anticipating a positive earnings season and trading stocks ahead of published results.
Investment banks such as JP Morgan and Citigroup will start the earnings season on April 12th. Netflix is set to declare the day on April 18th. Tesla is expected to reveal its results on April 19th. Microsoft will report on April 24th and Apple is expected to release the following day. NVIDIA is expected to post its results on May 22nd.
Current projections are that S&P 500 earnings are expected to grow 2.4% from the same period last year, with revenues expected to be 3.5% higher. Earnings for the 7 stocks (Apple, Amazon, Google, Facebook, Microsoft, NVIDIA and Tesla) are expected to increase by 33.2%. (1) If projections turn out to be correct, this could have a positive impact on stock prices - both on the magnificent seven stocks, but also on S&P 500 stocks generally. If expectations are not met, it could influence prices lower. However, the price could decline.