What is the Earnings’ Season?

Intermediate • Course 2

Stocks

Two of the most traded assets in the world are stocks and indices. Stocks are a part ownership in a company. When a private company goes public, the firm will make “shares” available for the public to purchase and become a partial owner of the company. For example, Apple may have 100 stocks and I purchase 10 stocks. This means I own 10% of Apple’s shares. Shareholders can profit from the price increase in value and also dividends.

Dividends are a sum of money which the company pays to its shareholders. This will be a piece of the company’s profits, normally paid on a quarterly basis.

Indices

An index is an investment fund which includes multiple stocks. In simple terms, an index is a single asset which has one price but includes a collection of different stocks. These stocks may be from a specific market or more than one. For example, the NASDAQ is 100 stocks from the US technology sector. This means the investor can invest in multiple assets at the same time. Indices become more popular over time, allowing traders to benefit from the stock market while lowering the risk.

It should also be noted that indices are lower-risk assets as they are diversified and unaffected by one sole company. The asset still pays dividends as with individual stocks. However, they offer an important advantage. When a company is underperforming or goes bankrupt, it is removed from the index and misplaced with another. This way, the investment is safe in the longer term and can technically never reach zero.

Earnings Season

The most important period for the stock market is the 6-week earnings season, which occurs 4 times a year. Earning season is a period when companies must release their financial figures for the past 3 months. All public trading companies are required to release their earnings within this period.

Investors are driven to companies earning a high profit or a high profit relative to the stock price. This is why positive earnings can trigger an increase in demand.

However, poor earnings can lower investors’ confidence and trust. As a result, many shareholders may choose to sell their shares.

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Derivatives are complex instruments and come with a high risk of losing money due to leverage. You should consider whether you understand how derivatives work and whether you can afford to take the risk of losing your money

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