We spoke with 3 financial experts, who said to make 4 these trades right now to get ahead of surprising gains when earnings season starts next month (2024)

FAQs

Should you buy stock before an earnings report? ›

If you believe a company will post strong earnings and expect the stock to rise after the announcement, you could purchase the stock beforehand. Conversely, if you believe a company will post disappointing earnings and expect the stock to decline after the announcement, you could short the stock.

About earnings season

Earnings season is the period during which publicly traded companies release their financial results. It is marked by increased market volatility, with individual stock prices often fluctuating significantly in response to releases, especially for growing companies.

To predict earnings, most analysts build financial models that estimate prospective revenues and costs. Many analysts will incorporate top-down factors such as economic growth rates, currencies and other macroeconomic factors that influence corporate growth.

Earnings season in the United States is a period where a large number of publicly-traded US companies report their quarterly earnings. Second-quarter earnings season began in earnest during the second full week of July, led by banking giants JPMorgan Chase (JPM), Wells Fargo (WFC) and Citigroup (C).

The 3–5–7 rule in trading is a risk management principle that suggests allocating a certain percentage of your trading capital to different trades based on their risk levels. Here's how it typically works: 3% Rule: This suggests risking no more than 3% of your trading capital on any single trade.

In general, strong earnings generally result in the stock price moving up (and vice versa). But some companies that are not making that much money still have a rocketing stock price. This rising price reflects investor expectations that the company will be profitable in the future.

Earnings accouncements have an effect on the share price, which will move up or down depending on the company's performance. Analysts estimate how the company will perform, but these expectations can rapidly adjust up or down in the days leading up to the announcement.

While it's your education and occupation that best predict income, there's one factor that does a great job of predicting your salary that many people never consider: your ability to delay gratification.

Should you trade around earnings? ›

Trading earnings can be a profitable strategy for investors, but it comes with its own set of risks and challenges. It's essential to approach this strategy with caution and do your research to ensure that you're making informed decisions.

In today's markets, it comes down more to the general timing of a release rather than a specific day of the week. A company might plan to announce their earnings after hours when there is typically a lower level of investor attention being paid.

According to Reuters, since 1945, April and December are tied as the best-performing months of the year for stocks, with an average return of 1.6%. (September is notoriously the worst, with an average loss of -0.6%.)

Option 2: Sell part of every growth stock you own before it reports earnings. Believe it or not, this is a decent halfway measure … if you're running a concentrated portfolio. For instance, if you have, say, 12% of your account in a stock that's about to report, maybe you trim that down to 6% or 8%.

Stock prices tend to fall in the middle of the month. So a trader might benefit from timing stock buys near a month's midpoint—the 10th to the 15th, for example. The best day to sell stocks would probably be within the five days around the turn of the month.

But they warn that playing options before the announcement is the riskier move, though potentially yielding large profits if the directional move is correctly predicted. However, jumping in with options after the release could set the investor on track with long-term directional movement.

There are two key factors that influence a stock's performance: the profitability of the underlying company and how investors value that profitability. An earnings report can tell you about the profitability part but not the value that investors place on those profits.

Companies also need to consider corporate trading windows when repurchasing stock. Most publicly traded companies have a policy that restricts trading in company shares (a “blackout policy”) beginning two weeks prior to the quarter end through 48 hours after earnings are released publicly.