Market Watch

Q2 Earnings Season is coming up

We are still waiting on Q1 earnings results from a couple of dozen S&P 500 members at this stage, but the reporting cycle is effectively behind us now.

In fact, of the 15 S&P 500 members on deck to report results, two will get counted towards the Q2 earnings season. These two are AutoZone (AZO) reporting on Tuesday, May 25th, and Costco (COST) reporting after the market’s close on Thursday, May 27th. Both of these retailers will be reporting results for their fiscal quarters ending in May, which we and other data aggregators count as part of the June-quarter reporting tally. S&P 500 index awareness include in this season.

The year-over-year growth numbers were very strong in Q1, partly reflecting the easy comparisons to the year-earlier period. The easy comparisons issue will be even more pronounced in Q2 as the corresponding 2020 period represented the pandemic’s severest impact.

We should keep in mind, however, that the strong earnings growth we saw in Q1 and the even stronger growth expected in Q2 is also reflective of genuine growth in the absolute sense, not just a result of easy comparisons. Take a look at the chart below to get a better sense of this reality.

What Is Earnings Season?

Earnings season is the period when publicly traded companies release their most recent quarter’s financial information in a report called Form 10-Q. During this time, many companies also host conference calls to discuss the results and field questions from analysts on Wall Street. The information shared during earnings season can offer specific details about a company in addition to trends in various industries and the pace of economic growth more broadly. The data released is then compared with analyst estimates from before earnings season to determine how a company did versus how it was expected to do. Earning calendar can help you to manage your earning by this season.

The Market Is More Volatile During Earnings Season

Earnings season boils down to how expectations match up with reality. If a company’s results beat or miss analysts’ expectations or commentary from management surprises market participants, then its stock may experience some wild price swings as Wall Street analysts and market participants update their recommendations and holdings.

As a result, you may see fluctuations in your portfolio during earnings season even if you don’t own shares of companies reporting results. That’s because of the ripple effect one company’s results may have on others in its sector and the broader market.

May affect investment

If you are considering buying a company’s stock, earnings reports offer a way to gauge the health of its business. What’s more, some companies historically see bigger price swings related to earnings—Netflix is one example—so knowing that in advance by checking a list, like Bespoke’s listing of the biggest 40 earnings season movers, can help you to avoid any unpleasant surprises.

If you own a stock, earnings reports are a good way to stay up to date as a shareholder. And this information may be a factor in deciding whether to buy more shares or sell some. Even if you don’t make investment decisions based on what happens during earnings season, other investors and traders will—and, again, that can affect a company’s stock price and, potentially, the broader market.