NEXT WEEK IS THE BEGINNING OF EARNINGS SEASON
If you listen to the TV news shows next week (7/12/2010) you may hear them say that it is the beginning of earnings season. What that means is that it is the time of the quarter when companies start to report earnings. In this case, it will be the quarter just ended which is the second quarter.
Earnings season usually goes on for 2 or 3 weeks during which time many of the big influential companies will all announce their earnings and give a look forward. This is when there can be good and bad surprises that move the market significantly one way or another and set the tone for the immediate future. Some of the companies that are scheduled to announce are JPM, GOOG, C, and many others.
While analysts and investors are always interested in present earnings, it is the future outlook that can be much more important to a stock price and to the market as a whole. For instance, if Google reports great earning this quarter that are way better than anyone imagined, the stock price may still go DOWN if their outlook is not good. It is what the management of these companies say about their businesses and the economy down the line that most people are keenly interested in. This is called “guidance” and everyone will be paying special attention to the guidance that is given.
Earning season is a look into the last quarter and what just happened but it is also a look into the future which I have talked about so many times on this blog. When people are learning how to buy stocks, the one thing they need to understand is that the market is a forward thinking beast. Stock investors generally care more about what is going to happen than what just happened.
Understanding what people are thinking about stocks and how that affects their price is hard for anyone buying stocks for the first time. Sometimes it can be confusing to see a company have disappointing earnings and yet the stock price will go up or conversely good earnings only to see the stock price go down. This is usually because of some news that was given along with the earnings data that people are paying special attention to.
Bad news this earning season will most likely mean the market will go down from here. Personally, I think the chances of bad news is greater than good news as I think the economy is on very shaky terms right now with the government and their out of control spending.
