When trading, it is important to follow the news to determine when volatility may increase and impact your portfolio or your investment strategy. When you trade stocks, there are certain periods of the year during which the stock price of the companies you follow can greatly vary (in either direction): the earnings season
The earnings season corresponds to periods of the year when companies publish quarterly reports on their past performance – usually a few weeks after the last month of each quarter.
As a result, many investors follow the earning season’s releases of their pre-selected companies very closely to determine which firms show growth potential. Others analyze the results of the companies they already own to rebalance their portfolio so that it best reflects changing market conditions.
To protect their investments, many investors use options through options platforms such as easyMarkets to obtain the right, but not the obligation, to buy or sell shares at a predetermined price when the contract expires.
Why do investors need to keep a close eye on the earnings season?
Among the many figures published during the earnings season, net income, and earnings per share (EPS) are the most important ones for traders and also the ones that impact the markets the most.
Net revenues represent the revenue the company earns once expenses are deduced. This measure, therefore, represents how much profit the company retains once it has paid all its expenses, taxes, and other relevant costs, which is a crucial measure for investors.
They can thus determine whether a company is making money or not, which affects its stock price. If a company is making money (positive net income), then it is more likely that the company will decide to increase its dividend or finance its development projects itself, which adds value to its share price.
Net revenues also allow for the calculation of earnings per share (EPS), which is the total amount of profits generated by the company divided by the number of shares, a good estimate of a company’s performance. This measure also demonstrates a potential level of enrichment that a shareholder might obtain by investing in the company.
Thus, it is easy to understand how the earnings season and the figures that are published during this period can impact investor decisions and influence stock prices.
It should also be noted that beyond the company’s performance itself through the published figures, the difference between analyst expectations and the published numbers can really trigger a market move – and not always as one might think.
A positive figure, but below expectations, can disappoint the markets and negatively impact a company’s share price. Conversely, a negative number, but less than expected, can positively impact the price of a stock.
Always be prepared for the results season.
You have now understood why monitoring the earnings season is important if you trade the stock market and how it can impact your investments. It is important to maintain a diversified portfolio so that it’s as resilient as possible in case of a hard blow. In addition, you can use a wide range of investment tools and vehicles, such as options, to make the most of market movements.