Earnings season is less than a week away; officially beginning
on Monday, July 8th.
Given the market's spectacular rise in the first half of the year
(up 13.33%) and the unfortunate pullback from the highs in June
(off -7.52% at its worst), a lot is riding on this earnings season.
So I wanted to see how the market fared during each earnings season
in the recent past, and if history would be able to give some clues
for what might be in store this time around.
This Earnings Season
Alcoa has the distinction of being the 'official' start of earnings
season, but not because it's some great barometer of the broader
market. In fact, many people discount Alcoa's earnings as being
largely irrelevant at predicting how any particular earnings season
Instead, Alcoa has become synonymous with the start of earnings
season simply because it's the first blue chip stock in the Dow
Jones to report earnings each quarter. It's been that way for some
time and that tradition has stuck.
On July 8th, after the close, AA will report earnings, and the rest
of the season's fanfare will begin.
Past Earnings Seasons
Rather than analyze the ups and downs of earnings forecasts for the
S&P, I want to look at the actual price performance of the
index during each earnings season since the bull market began in
Granted, since the market has been in an uptrend, there is, of
course, an upward bias to this study. But the numbers still reveal
something about earnings season, and the period immediately
Over the last 4+ years (17 earnings seasons) beginning in 2009, I
set out to see how the market performed during that very specific
window when earnings season is in full swing.
I used the earnings announcement of Alcoa as the start date for
each period and then tracked how the market did for the next 5
weeks. (That roughly coincides with the unofficial end date of
earnings season, which is marked by Hewlett-Packard's earnings,
i.e., the last of the Dow components to announce earnings.)
Over the last 17 earnings seasons:
- the median return for the S&P was 3.82%
- 12 out of 17 (or 71%) of the periods were winners
- the largest winning period was 14.35%, while the worst losing
period was -8.72%
- the most recently completed earnings season saw the market
- there's a greater chance of having a positive earnings season
if the last earnings season was positive as well
I found these statistics to be quite interesting. So I expanded my
Next, I wanted to see what the market did in the 30 days following
Here's what I found:
- the median return for the S&P was 2.22%
- 10 out of 17 (59%) of those periods were winners
- the largest winning period was 6.48%, while the worst losing
period was -5.66%
- the most recently completed 30-day post earnings period was
off -1.30% (part of the drop we saw after the Fed's 'taper' talk)
- 8 out of 12 (67%) periods where the earnings season was
positive, the following 30 days were positive as well
- if the earnings season was negative, there was a greater
likelihood that the following 30 days would be negative as
Note: as I mentioned earlier, the market has been in an uptrend
(last month notwithstanding). But, in all fairness, we've had some
exceptionally volatile periods during this bull market run-up, with
some gut wrenching drops. So while an upside bias does exist and is
likely showing up in this study, there is clearly a higher
probability of success during earnings season, and shortly
thereafter, which appears to be more than just coincidence.
The bull market is still clearly intact. And it will take a lot
more than a bad month to kill off one of the best stock market
rallies in recent memory.
The economy, while it could be growing faster, has been growing
fast enough to increase employment and spur record corporate
Whether the Fed tapers by year's end is unknown. But the
attractiveness of stocks continues, and is likely to keep this bull
market going for a while longer. Keep in mind, lost in all of this
taper talk was remarks that interest rates were likely to stay
where they are until 2015! So it looks like there's much more to go
in this rally.
To get ready for this upcoming earnings season, here's a screen to
help find stocks with a high probability of positively surprising
in the coming weeks.
Zacks Rank less than or equal to 2
(Only Zacks Rank #1s (Strong Buys) or Zacks Rank #2s (Buys).
These stocks are the ones receiving the best upward earnings
estimate revisions. Especially significant going into an upcoming
Last EPS Surprise greater than 0%
(Stocks posting positive surprises have a tendency of surprising
Last Sales Surprise greater than 0%
(A positive sales surprise shows top line strength.)
Net Margin greater than Net Margin from 1 Quarter
(Seeing a company earn more for every dollar of sales a company
makes bodes well for another bottom line beat.)
Here are 5 stocks that came thru this screen that will be reporting
within the next few weeks:
Asbury Automotive Group, Inc.
(reports on 7/23)
The Cheesecake Factory Inc.
(reports on 7/24)
ICON Public Ltd. Co.
(reports on 7/22)
(reports on 7/19)
The PNC Financial Services Group, Inc.
(reports on 7/17)
Each one of these stocks is a top Zacks Ranked stock that
positively surprised their last time out, has been beating the
market, and is due to report earnings within the next few weeks.
Start using the Research Wizard in your own trading to find your
own high probability stocks. Or pick and choose from the strategies
that Zacks has already created that come loaded with the program.
And backtest them all to see how successful your stock picking
strategies have been before you place your next trade. It's all
Sign up for a free two week trial to the Research
Disclosure: Officers, directors and/or employees of Zacks
Investment Research may own or have sold short securities and/or
hold long and/or short positions in options that are mentioned in
this material. An affiliated investment advisory firm may own or
have sold short securities and/or hold long and/or short positions
in options that are mentioned in this material.
Disclosure: Performance information for Zacks' portfolios and
strategies are available at:
ASBURY AUTO GRP (ABG): Free Stock Analysis
CHEESECAKE FACT (CAKE): Free Stock Analysis
ICON PLC (ICLR): Free Stock Analysis Report
NCR CORP-NEW (NCR): Free Stock Analysis Report
PNC FINL SVC CP (PNC): Free Stock Analysis
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