The stock market has enjoyed significant growth from 1980 to 2019, with its total market cap value increasing from $2.5 trillion in 1980 to $83.53 trillion during this period.
However, stock market trading remains surprisingly volatile, while there is also a myriad of factors for investors to consider before making a final commitment.
These include ‘earning seasons’, but what does this term refer to and why is it so important? Let’s find out:
What are Earning Seasons?
An earning season is a period that occurs during each fiscal quarter, while it usually lasts for a period of several weeks or so.
During this so-called “season”, many of the market’s largest listed companies announce their latest financial account information.
This type of earnings report comprises revenue information such as net income, earnings per share (EPS) and a forward outlook, among a raft of additional data points to help inform investors and provide a clear insight into the trajectory of the business’s performance.
But why exactly is this information so important? Well, it certainly helps investors and similar market participants to glean information from companies, which can in turn help to provide some qualifying data pertaining to share valuations and future price movements.
It can also be used to garner information and insight in line with broader and more general index data, which can be important for those trading forex or indices such as the S&P 500.
For example, a strong and robust Apple (AAPL) earnings report during the season may well encourage investors to adopt a bullish outlook with regards to the Nasdaq 100 futures, which in turn has a positive impact on market sentiment and subsequent trading platforms.
The Last Word
The latter point is interesting, as data such as earning seasons can have a direct impact on market sentiment and whether or not investors develop a bullish or bearish mindset.
On a more fundamental and technical level, this information also allows investors to gauge the short, medium and long-term value proposition provided by particular stocks.
For example, it’s well-known that leading tech stocks on the Nasdaq 100 are valued way beyond what would be supported by their earnings data, creating a clear contradiction that may inform investors’ decisions in real-time.
This is crucial, as it’s easy to be swayed by a company’s reputation and its inflated share price, rather than focusing on the fundamentals that define its growth.