Earnings season for the first quarter of 2022 is upon us. Here’s what you need to know and what to expect from the markets during this period. Earnings season refers to the period during which several publicly listed companies release their quarterly earnings figures for the world to see. Whilst there is no official kick-off to earnings season, companies will usually release their earnings anywhere between two or six weeks after the last month of each quarter (March, June, September and December).
The financial information shared during earnings season is looked upon by investors as an indicator to the current financial health of a firm, along with its future growth capabilities. Earnings season can also be used to help to uncover specific industry trends.
A company’s quarterly earnings report provides investors with vital information on a company-such as net income, revenue and earnings per share. Public companies may also hold conferences to discuss recent earnings and answer questions from Wall Street analysts.
Why is Earnings Season So Important?
- Expected versus Actuals. An important aspect of earnings season is the comparison between how a company is expected to perform versus how it actually performs. For blue chip stocks especially, quarterly earnings data is compared with analysts’ estimates leading up to earnings season, which uncovers whether a company’s earnings either exceeds, meets or falls short of Wall Street’s expectations.
- Wider Market Implications. Earnings data from household names like FAANG stocks can also hint towards the long-term trajectory of the broader stock market. Since analysts will aggregate earnings for benchmarks like the S&P 500 or the Nasdaq 100, investors may revise their expectations for a stock index based on the financial performance of it most influential movers.
- Market Volatility Increases. Whether a company hits or misses its expected financial projections, earnings season often injects a spike of volatility into the markets. Stocks that either massively outperform or underperform on earnings based on the market’s expectation will usually experience some additional price volatility as market participants and analysts update their holdings and recommendations.
The Latest with Q1 2022 Earnings Season
Earnings season for the first quarter of 2022 is now well underway. The season kicked off with an underwhelming start from JPMorgan Chase, which reported a 42% fall in quarterly profit, sending its share price 3.2% lower. Things looked less turbulent for the aviation sector, with Delta Airlines smashing earnings expectations last week. Delta stock jumped 6.2% as a result and even brought the broader S&P 1500 airline index 6.8% higher. United Airlines stock also rose more than 7% last week, despite posting a quarter 1 loss of $1.38bn- their ninth consecutive quarterly loss. Investors reacted to the airline’s bullish future outlook. Company executives have reported American Airlines to end the year “solidly profitable”, also predicting the “highest quarterly revenue in company history in Q2”.
This week, some key market movers are set to release their 2022 first quarter earnings. Microsoft and Alphabet report on Tuesday, whilst Apple, Amazon, Twitter and Intel are scheduled for release on Thursday. Earnings from Coca-Cola, PepsiCo and Nestle are also on the cards this week.
How to Benefit from Earnings Season
Quarterly earnings analysis should be used to re-evaluate your portfolio picks and your general investment thesis. Investigate whether your top picks met their revenue targets and what was the reason they either exceeded or missed them. Depending on your investment style, traders will look at earnings season very differently. Long term investors shouldn’t stress too much over the higher volatility around earnings season. A bad quarter is not necessarily a signal to sell, particularly if you’re investing for the long term.
Earnings season is known to be a volatile period, and whilst investors should try to avoid making long term trading decisions based on short term information, the real lesson is in understanding the information flows between market players. The market’s reaction will ultimately inform analysts’ recommendations and a stocks short term trading pattern. Seeing how this unfolds will make you a more well-informed investor.
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