The year 2020 will go down in history as one of the most volatile, unpredictable, and ultimately profitable in market history. Now, 2021 has begun and the world’s publicly traded companies will start sharing their earnings reports. Traditionally, the first sector to share its reports is the financial sector, and investors are eagerly awaiting the latest figures from Q4 and 2020 as a whole.
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The first releases of the sector will be from JPMorgan Chase, Wells Fargo and Citigroup, which will share their earnings on Friday, January 15th, before markets open. The following Tuesday, January 19th, will see Bank of America and Goldman Sachs sharing their reports, joined by Morgan Stanley the following day.
What is earnings season?
Earnings season is the time period during which publicly traded companies share their financial reports. Each quarter, earnings are released by numerous companies around the world, in a process that spans almost the entire quarter. However, certain weeks during the season attract more attention, such as the ones in which large financial institutions (“big banks”) or technology giants (“big tech”) share their reports.
When is earnings season?
Companies are required by law to share their reports at least once every quarter. These companies publish their earnings after the quarter is over. Therefore, the earnings season that starts in January 2021 will feature reports relating to the last quarter of 2020. In addition, since it is the first release of the year, many companies will also share an annual summary of their performance in 2020. To follow upcoming earnings reports, check out the earnings reports calendar on eToro.
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Why investors care about earnings
When it comes to investing in the financial markets, there are few things more valuable than relevant data. Earnings reports present some of the most accurate and up-to-date figures available to the general public, and those serve as key indicators of a company’s performance. While past performance is not an indication of future results, they can reveal valuable information about the company’s potential, stability and ability to endure hardships.
Moreover, on top of financial information, such as earnings per share, revenue and bottom line profit, companies will often disclose other information, such as sales figures and expansion plans as part of their reports. These may also serve potential investors as they make a decision regarding whether or not to invest in a new company, or to adjust their current investments.
How to invest during earnings season
As with many market events, there are various approaches to be taken when trading and investing during earnings season. Some of these include:
- Short-term hype: A surprise increase in revenue for a certain company could prompt many investors to buy more of its shares, resulting in a rise in the stock price. Short-term traders often look for such opportunities, in an attempt to cash in on the often short-lived excitement.
- Value investing: There is often a gap between a company’s stock price and its value. Diligent investors will read through earnings reports to try to find companies that are more valuable than their stock price reflects. Such opportunities could be very alluring to investors, as the stock price will often fall in line with the company’s actual value.
- Dividend growth: Investors who have more capital and can afford large investments may look at the dividends each company has announced it will be paying its investors. Owning shares from companies which pay steady dividends is a preferred revenue stream for many long-term investors.
- Finding short-term opportunities: Another short-term strategy has to do with finding companies that are likely to see their stock price tumble. Short-term traders who believe a company will greatly go down in value will open a short (SELL) position on said company in an attempt to cash in on its demise.
Investing in the big banks
As mentioned earlier, the big banks will set the tone for this earnings season. As interesting as earnings are in general, this year’s first batch may be even more intriguing, as it will give a more accurate picture as to how the big banks withstood the many trials and tribulations of 2020. Investors who want to gain exposure to these large financial institutions as part of a single portfolio on eToro, should look into TheBigBanks Smart Portfolio.
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As vaccines are being rolled out around the globe, and the world will slowly return to normal and shake off the tragedy that was the coronavirus pandemic, the opening call for this quarter’s earnings season may set the mood for the year to come. Be it positive or negative, rest assured that investors and analysts will be glued to their screens, reading every possible piece of information released by the big banks.
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This is a marketing communication and should not be taken as investment advice, personal recommendation, or an offer of, or solicitation to, buy or sell any financial instruments. This material has been prepared without taking any particular recipient’s investment objectives or financial situation into account, and has not been prepared in accordance with the legal and regulatory requirements to promote independent research. Any references to past or future performance of a financial instrument, index or a packaged investment product are not, and should not be taken as, a reliable indicator of future results. eToro makes no representation and assumes no liability as to the accuracy or completeness of the content of this publication, which has been prepared utilising publicly available information.