Looking for a Stock Boost? Just Wait for Earnings Season
The wave of company reports usually propels equities to above-average returns, especially during periods of high economic and policy uncertainty.
Fears of an economic slowdown and rising interest rates may only intensify the historically positive effect of earnings seasons.
Photographer: Michael M. Santiago/Getty Images
With first-quarter earnings season about to get underway, many investors are worried that budding economic uncertainty caused by high inflation and Federal Reserve rate increases could jeopardize the recent rebound in U.S. stocks. But historical experience suggests quite the opposite.
Indeed, earnings seasons usually propel stocks to above-average returns, especially during periods of high economic and policy uncertainty. The positive effect has even intensified during the pandemic as the somewhat permanent impairment in confidence has allowed company reports to spark repeated relief rallies in stocks when the results aren’t as bad as feared. Likewise, analysts and companies have erred on the side of caution in both estimates and commentary, allowing for an extraordinary pace of earnings beats to unfold repeatedly in recent quarters. More beats to expectations in turn bring even greater relief, which pushes up stock prices.