Every few months, you may hear the phrase “earnings season” as you listen to financial news.
But what exactly is “earnings season,” and why is it important to Wall Street?
Earnings season is the time when a majority of publicly traded companies release their quarterly financial reports. Companies often go into great detail about their business, and some may guide what lies ahead.
Typically, earnings season starts several weeks after the calendar quarter comes to a close. For example, the fourth quarter's earnings season began in mid-January, and the majority of companies expect to release their earnings over the next six weeks.1
In recent weeks, some market watchers have expressed concerns about stock-price valuations. Stocks are currently trading at about 23 times 2021 earnings, above the historical range of 15 to 17 times forward earnings.2
Expectations for a robust economic rebound may explain today's valuations; a rise in corporate earnings may accompany these. As earnings season gathers momentum, we’ll be able to see if the optimism is warranted.3
Over the next few weeks, you can expect to hear some upbeat comments about the fourth quarter. But brace for some negative reports. If you hear some confusing commentary, please give us a call. We'd welcome the chance to talk about what earnings are saying about the overall economic outlook.
1. Insights.FactSet.com, January 22, 2021
2. CNBC.com, January 21, 2021
3. Insights.FactSet.com, January 22, 2021
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