For many, the earnings season can be just a jumble of numbers. For the sharemarket, earnings season is like scorecard season; time to get marked as being at the top of the ladder or down at the bottom of the ladder.
So what are the important things to keep an eye out for? What are the factors that will move share prices? And what topics will dominate the earnings season?
Just before earnings season we get 'confession season'. Often, if a company is going to exceed or not meet its targets, it will come out a couple of weeks before the result and warn the market. So even before earnings season has started, it's wise to keep a close eye on company announcements.
While the reported earnings or net profit numbers are important, keep in mind that share prices are a reflection of the future. As such, the market isn't as concerned about the results that have been reported as much as it is about the next batch of results. So keep an eye out for profit forecasts and anything that may impact on future profits.
Sometimes you may notice that a company will come out with a record profit and then their share price will fall. The share price fall will usually be due to the outlook for the company. If the company comes out and says that the next year is expected to be challenging and profit is expected to be lower, the share price will probably fall regardless of the reported record profit. And that's because share prices are focused on future profits.
Here are some of the major themes likely to come through this earnings season:
Remember that the main thing to focus on is whether profits are likely to rise or fall in the future. That should be the main driver of the share prices.
Happy trading!
Julia Lee Equities Analyst Bell Direct Have you started trading with Bell Direct for just $15 a trade? Register now for free.