What is ‘earnings season’ and how does it affect the stock market?

Companies across the globe are preparing for earnings season. So, what is it? And what does it mean for the stock market? Ruby Layram takes a look.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Anyone who dabbles in trading will know that the stock market fluctuates at various points throughout the year. One significant contributor to stock market events is earnings season, which is approaching for Q4 of 2021!

If you’re unfamiliar with what earnings season is, here’s everything you need to know about the quarterly event as well as how it could affect the stock market.
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What is earnings season?

Earnings season is a quarterly event in which companies report their quarterly or annual earnings. Simply put, earnings season is the time when companies are required to reveal how much money they have made.

The financial information is released in a report called the Form Q-10. The information released will often give a detailed insight into industry trends and broader economic behaviour. This can help investors to make informed decisions about stocks.

The data that is released during the season is usually compared with predictions that were made before the quarter. This can be a helpful indicator as to how the company performed against its expectations.

During earnings season, companies host meetings and conferences to discuss their results, making it a busy time for financial news outlets.

When is earnings season?

There’s an earnings season at the end of each financial quarter. There is no specific date for earnings season. Instead, the seasons fall within the two weeks after the last month of each quarter.

As a result, earnings seasons typically occur in January, April/May, July and September/November. The first earnings season for 2022 will kick off in mid-January.
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How does earnings season affect the stock market?

Earnings season can spark volatility in the stock market. This is because stockholders review the reports that are released and subsequently alter their positions according to the data. If a company has performed badly, for example, shareholders may decide to sell their stock, which would trigger a significant price drop.

The season spans a period of days, and during this time, you will see companies’ stock prices rise and fall by significant percentages. This means that shareholders have to stay alert and look out for movement in the stocks that they hold.

What to look out for during earnings season?

Reports released during earnings season can provide useful insight into whether a company is a safe investment decision. If a negative report is released, it is likely that shareholders will sell their stock, which will push the price down. Therefore, it is a good idea to keep an eye out for any underperforming companies that you may have investments in.

You should also look out for companies that have performed well during the recent quarter. This could be a sign of strong investment and is a great way to make informed decisions about your portfolio.

Trading at any time of year will put your capital at risk. However, volatile movement during earnings season can make it one of the riskiest times to hold shares in a company. The active market can be a daunting and often scary environment for shareholders. This can result in rushed and impulsive trading decisions.

During earnings season, it is important to keep a clear mind and stick to your trading strategy. Try to avoid impulsive investing by reading reports thoroughly before making any decisions. Remember that trading is inherently risky and it may be a good idea to seek professional advice before making any decisions.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

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