Four times a year, the market’s attention shifts from central banks and economic data to individual companies. Earnings season is the stretch of weeks when most large listed companies report their results for the latest quarter. It can move individual shares by double digits in a day and push whole indices around, especially when the biggest companies report in the same week. This week, with Microsoft, Alphabet and Amazon all due, is a good example.
When earnings season happens
In the US, most companies report on a calendar quarter basis, so results start arriving a couple of weeks after each quarter ends. The big banks usually go first, then technology, consumer and industrial companies follow over the next month or so. Our guide to how US bank earnings season works covers the opening week.
UK companies follow a different rhythm. Many report full results twice a year, with shorter trading updates in between. That means the UK has busy reporting weeks, but less of a single concentrated season.
What companies report
A results release usually includes revenue, profit, earnings per share and cash flow, plus details by division or region. Most companies then hold an earnings call with analysts, where management explains the numbers and answers questions.
The most important part is often not the past quarter at all. It is the company’s guidance, meaning what it expects for the coming quarter or year. A company can beat expectations and still see its shares fall if guidance disappoints.
Why shares move so much
Share prices already reflect what investors expect. Analysts publish forecasts, and the average of those forecasts becomes the bar to clear. Shares move on the gap between results and expectations, not on whether profits went up or down. A company whose profits fall less than feared can rally. One whose profits rise less than hoped can drop sharply.
There are also unofficial expectations. Traders sometimes talk about a whisper number, the figure the market quietly expects, which can be higher than the published forecasts.
Why a few companies can move the whole market
In the US, a small group of very large technology companies makes up a big share of the S&P 500 and Nasdaq. When they report, their results and spending plans can move not just their own shares but chipmakers, cloud providers and suppliers around the world. That is why investors treat a week like this one as a test of the whole AI story.
How beginners can approach it
Check the reporting calendar for any company you hold or plan to trade. Results usually come before the market opens or after it closes, which means prices can gap. Our explainer on after-hours trading explains how that works in the US. Many traders reduce position size ahead of results because the move is so hard to predict.
Read beyond the headline. Margins, guidance and comments on the call often matter more than whether the company beat on earnings per share.
For how this week’s results line up with the Fed and the UK Budget, this morning’s Morning Market Brief has the details. If you want to understand how you handle big binary events, the free Samuel & Co Trading Trader Assessment is a sensible next step.
