WHY STOCKS GO UP AND DOWN MOST BEFORE EARNINGS ARE ANNOUNCED
Have you ever been searching for the top stocks to buy right now and wait for earnings to come out before you make a decision? If you do that, you might have waited too long to buy as many times stocks seem to move the most before companies actually declare earnings and sometimes very little after. It might seem that it would make the most sense to see stocks react after earnings are announced but much of the time, the most movement happens before.
This is because the stock market is really based on people’s perceptions of the future and what they think is going to happen. During earnings season, all the analysts and major brokerage houses do their own analysis and make predictions on what they think companies are going to announce for their earnings. Often times these predictions and general sentiment toward a stock are enough to move them significantly.
If the predictions are all close to being correct, the stock price of a company has already moved to where it should be by the time the company announces earnings. There is little movement afterwards because there was no surprise in how well the company did. Of course if the earnings are way better or worse than what people thought they would be, the stock price does go up or down after earning as well.
After earnings are announced, one thing that always seems to affect a stock price’s movement is the forward looking comments that might be made by a company that go along with the earnings. For example, company XYZ might have had tremendous earnings that blew away all estimates for this quarter but if they announce that they see trouble ahead, the stock price will often go down instead of up as you might have thought. The forward looking comments are actually more influential in moving the stock price than the current earnings.
If you are buying stocks for the first time, this may be one of the things that takes time to get used to. Finding a company that has a bright future ahead of it will often make you more money than finding one that is doing well right now. This is never more evident than when you look at companies that are brand new and have no earnings and yet the stock price keeps going up. It seems to defy logic that a new company that is yet unproven can have a stock price that soars but the reason that happens is because people want to be part of what they think is a company that will do well in the future. The perception of good things to come and not wanting to be left behind often drives the stock up more than it should.
