Today, the earnings season for the second quarter will kick off officially. Before the US markets open today, three of the major banks will release their earnings which will mark the beginning of the season. Citigroup, Wells Fargo, and JP Morgan will be the first major banks to release their earnings. These results will be an indicator of what traders can expect in the quarter’s earnings season.
Every quarter, companies are mandated to release their earnings to their investors. The investors use the results as an indicator of what to expect in their companies. They also give them an opening into the performance of the companies.
The earning season is usually the most important period for investors specializing in stocks. This is because an earnings season tends to form the basis of how a company will perform in the next quarter. A good example of this is a company called Chipotle. As shown below, before the last earnings release, the company valuation was below the $350 mark. After the earnings release, the company surpassed the $450 mark. Further movements in the stock will continue after the company releases its earnings for the second quarter.
Therefore, for traders, it is very important to understand the best way to trade during the season. First, you need to know the exact time when a company you are trading in will report. You can get this information in various portals that are available online for free. By knowing the day and time when a company will report, you will be at a better position to know how to place your bets.
The second thing you need to know is the related companies. For example, if today’s banking results are good, you can place your bet that the financial results of other banks will be good. Therefore, if the earnings of the banks are good, you can buy the stocks of the banks that will report in the coming week with the expectations that they will be good as well.
Third, you need to understand the key details to look at in all earnings releases. The headline number of the EPS and the revenues are important. However, these numbers are usually backward-looking. Investors want to focus on the future. Therefore, you should always look at the projections made by the companies. Do the management expect the results to be better?
Fourth, you should always consider having a stop loss for your trade if you placed it before the earnings are released. This is a very important thing you should always do. This is because of the major shifts that we often see when companies are releasing their earnings. The stop loss will help you protect your account in case of major movements after the earnings are released.
In the coming week, we expect earnings from Bank of America on Monday, Goldman Sachs and United Health on Tuesday, American Express, IBM, Norvatis and eBay on Wednesday, Dominos Pizza, Microsoft, Nucor, PayPal, and Unilever on Thursday, and General Electric, and Honeywell on Friday.