Earnings reports are among the most market moving events for equities. They are catalysts of both heavy volume and high volatility, and occur four times a year. Any unusually strong or weak performance impacts market sentiment and can trigger a temporary rally or selloff. The figures reported, guidance announced, and dividend declared also play a crucial role in fundamental analysis and investors move their funds accordingly.
If you are a broker, this is a good time to provide real-time, bite-sized information to your traders. This supports quick decision making, allowing them to capitalise on the temporary volatility in the stock markets during the earnings season. Here’s why the corporate calendar is so important for trading the stock markets.
Phases of the Earnings Season
The NYSE alone had an equity market capitalisation of nearly $23 trillion, as of December 2022. Traders are excited about the potential returns offered by the stock market. At the same time, equities do trigger fears around market crashes, especially among newer traders and when sentiments are bearish. By offering education and sharing information, brokers can encourage traders to make the most of the opportunities presented by the stock market.
Traders need to know about stock indices, options, futures, and CFDs, to target more opportunities presented by the three phases of the earnings season.
Before the Earnings
Most publicly traded companies are followed by expert analysts who track their performance on a weekly or monthly basis. They research their sales, customer experiences, and competitive landscape to offer an accurately forecast the most important figures, including revenues, earnings, expenses, and dividends. Brokers can share the consensus estimates with traders. Also, sharing an earnings preview the day before the announcement can help traders get up to speed.
During the Announcements
It takes about an hour for a company to report its performance. During that time, every figure released is important. However, it is not the actual figures but how they fared against expectations that matters the most. Traders need a quick update on the figures that surpassed projections and those that missed expectations to make their trading decisions.
After the Announcement
The market takes time to digest a piece of news. The volume and momentum fade away gradually. Traders with a lower risk tolerance play it safe by waiting for the market to respond to the earnings release before taking positions. They then study market sentiment and stock fundamentals to make more informed trading decisions.
The Spill-over Effect
When looking at the corporate calendar, traders need to be aware of the competitive landscape. This is because investor focus is not merely on the reporting company, but also its competitors. For instance, when Uber announces results, traders use this information to make trading decisions about Lyft. If Uber announces strong revenues, traders need to know whether this is because of an overall increase in demand (great for Lyft) or due to market share gain by Uber (bad for Lyft).
Market sentiment may shift just by one company coming into the limelight. The first quarter of 2023 demonstrated this spill-over effect in the ride-sharing segment. Uber’s outperformance left Lyft begging for attention. Traders dumped Lyft even before it announced earnings, as the company lacked Uber’s global presence, food delivery and package delivery verticals.
More than Just the Stock Market
Of course, the performance of larger companies impacts the stock indices to which they belong. For instance, when Apple, Microsoft, Alphabet and Amazon report results, the Nasdaq 100 makes strong moves. Traders of stock indices will be keeping an eye on the corporate calendar as well.
At times, the corporate calendar can impact all financial markets. This is because the earnings reports of certain companies are used by economists and experts to gain insights into the bigger economic picture. For example, Walmart is considered the bellwether of the US retail segment. Experts may change their US retail sales predictions based on what Walmart has reported. This also gives an indication of overall consumer spending behaviour.
Similarly, earnings reports of the largest US banks, such as Bank of America and JP Morgan Chase, give an indication of the resilience and growth of the overall economy. Experts may change their GDP growth figures based on this.
So, even traders who are not trading stocks need information on earnings and sentiment data to make informed trading decisions. Such analysis is even more important for scalpers, who take advantage of the tiniest price movements across a wide variety of assets.
How to Support Traders?
Actionable insights are crucial for traders and speed up decision-making. Educating them is one thing; but empowering them with data and analysis can be a huge differentiator for a broker.
Acuity’s AI-driven corporate calendar is a powerful tool for brokerages to help traders make the most of the earnings season. It includes all the market-moving industry news, including earnings, dividends, call/webcasts, stock splits, IPOs, M&As and more. Further, their sentiment analyser scans social media and news sites to gauge the market sentiment around an event. It intelligently combines unique data-driven insights with financial news from across the globe.
Acuity’s plug-in tools integrate seamlessly and can be customised to your brand. Request a demo today to discover how your brokerage can optimise trader acquisition, retention, and encourage trading.