Four times a year publicly traded companies release their financial statements and require disclosures in what has been dubbed “earnings season.” The Securities and Exchange Commission (SEC) requires the reports as a way to provide better transparency to investors as to what exactly they are investing in and how the company is performing.
While there are not any official dates the SEC requires to mark the beginning or end of earnings season, the majority of publicly traded U.S. companies report their quarterly earnings more or less around the same time. The only official requirement is that the earnings report be released within 45 days of the end of each quarter.
When is earnings season?
Most companies follow a fiscal calendar of January 1st through December 31st, with earnings season being the weeks following the end of each fiscal year quarter – meaning March, June, September and December. The end of each month will mark the “beginning” of earnings season for that quarter, a time when company earnings reports begin rolling in and markets begin to react accordingly.
For decades, the unofficial kickoff of earnings season comes with the report from Dow component Alcoa, a top aluminum producer, which is regularly one of the first major companies to release earnings each quarter.
Why is earnings season important?
Earnings season is an important time for investors, as earnings statements can influence investment decisions. Quarterly earnings reports give insight as to a company’s financial health and future forecasts of success. On a larger scale, a company’s earnings can dramatically influence stock prices.
“While the numbers reported by the company are important, most analysts and investors want to know what the company forecasts for the future,” says Tim Bain, president and chief investment officer at Spark Asset Management. “That’s why the commentary around the just-reported quarter and the company’s expectations about the future, relative to the estimates those analysts and investors have leading up to the conference call, tend to drive the stock price.”
Information released during each earnings season shows an individual company’s strength or weakness, but also speaks to broader economic conditions as well. Both institutional and individual investors often react to earnings data to see if the company meets or beats market expectations. Consecutive quarters of weak earnings season reports could indicate an oncoming bear market.
Earnings season is both an important indicator for overall economic conditions and a crucial time when investors are given key information upon which to base their investment decisions.
Earnings season timeline
While there is no definitive date structure, each earnings season begins roughly two weeks after a quarter ends and lasts for about six weeks. Here’s a rough timeline of when reports begin rolling out:
- First quarter (ends March 31): Earnings season begins around April 15 through the end of May.
- Second quarter (ends June 30): Earnings season begins around July 15 through the end of August.
- Third quarter (ends Sept. 31): Earnings seasons begins around October 15 through the end of November
- Fourth quarter (ends Dec. 31): Earnings season begins around January through the end of February
Earnings season investment tips
Chris Panteli, founder at LifeUpSwing, a site dedicated to teaching consumers about budgeting, says “The earnings season is an important time to evaluate a stock and make a decision on an investment.”
For example, he says if a company fails to beat earnings estimates the first time, the stock might be a good buy the next time it reports. This can happen as analysts have confidence in the company (based on their fundamentals and forecasts) but for whatever reason the company did not meet expectations (low sales, glut in the market.) Sometimes this can mean a company simply is not doing well – other times it can mean the company is just not there yet, but will be. In the latter case, it could present a good opportunity to buy.
Earnings reports are a good way to see if there is value in your investment. If you follow them regularly, you will be more likely to spot a buying opportunity or decide that it’s time to sell an underperforming stock.
Earnings season is especially crucial for investors in growth stocks. Growth stocks are typically expected to grow at higher rates than the rest of the market, so if their earnings reports are positive, they can offer big upside potential to investors. Value and dividend stocks, which tend to be larger, stable and more financially established businesses, don’t tend to move as much with their earnings reports.
It could be a good idea to reduce exposure in growth stocks before an earnings report to hedge against possible short-term swings in price. Should the stock fall, but confidence remains high, it could prove to be a good buying opportunity, and should the company report weak earnings and the price fall, your exposure will be minimized.
But when it comes to timing trades around earnings, Allen Thuma, portfolio manager at Buckingham Advisors warns, “It is incredibly difficult to time the market or individual positions around earnings reports. A better approach is to remain diversified and focus on longer-term goals.”
Another important thing for investors to remember during earnings season: related stocks in a particular sector can be affected by one company’s earnings reports. Stocks in the same industry will typically trade in similar ways, because their businesses are affected by similar factors. For example, if Apple trades higher after its earnings report citing increased demand for phones in emerging markets, rivals Samsung and Huawei might also trade higher despite not releasing reports yet.
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.
Read More: What Is Earnings Season? | Bankrate