How to parse through the earnings season

Infrequent followers of financial news may have grasped that we’re currently in the thick of the third-quarter earnings season, but given the endless amounts of information coming out, they may be at a loss for how to navigate all the news and incorporate it into their investing decisions.

First, the basics: public companies are required to report their results every three months; they release their latest balance sheets and provide commentary for the coming quarter and year. These reports are released over the period of a few weeks, with investors principally focused on how earnings and sales stack up against consensus analyst forecasts (analyst estimates are typically bearish; more than 60 percent of S&P 500 companies top expectations, historically speaking), but this can vary by industry and specific companies.

If you own shares in a particular company you should absolutely read over that company’s report, which can be found on their website. However, you should be wary about trading based solely on one quarter’s results. Remember that each report is just one point in a long series of a data, so consider the results in the context of how the company has performed over the long term. A good company could have a bad quarter because of macroeconomic reasons, that doesn’t mean it is poorly managed or in bad shape for the long term. Similarly, a blowout quarter may look good in the short term, but may not be sustainable. You shouldn’t necessarily panic or think you’re in the clear if the results come in far from expectations in either direction.

For investors who put their money in broader funds rather than specific names, the earnings season is a good time to take the temperature of the overall market. In the case of this quarter, many had been worried about how slower growth in China and a stronger U.S. dollar would impact profits, especially those of multi-national companies with heavy global exposure. Those factors had investors expecting profits to fall from the year-ago period – making for the worst quarter in several years. However, the tone this quarter has been relatively bright: profits have fallen, but not by as much as feared. Wall Street has risen as a result; the S&P 500 recently turned positive for the year.

The quarter should help remind investors that despite some headwinds from abroad and questions about how Federal Reserve policy may change in coming months, the fundamentals to the market remain solid. That’s the key thing to keep in mind with your investing decisions.

Christopher Hanly is an investment consultant with Gary Goldberg Financial Services and can be reached at 845-368-2907 or [email protected]


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