Each quarter, this period is marked by heightened volatility around corporate releases. This is nothing unusual, but it does mean keeping a close eye on the earnings calendar to avoid any poor investment decisions. Buying into a company the day before it reports, without realizing it, is one example
To avoid any unpleasant surprises, the publication calendar is available in the site header.
Beyond the numbers, this season is also an interesting lesson in better understanding stockmarket psychology.
Because while there is always a more or less rational explanation for a big move in a name, it sometimes happens that you are left wrong-footed and cannot make sense of the market after an earnings release
Results vs. forecasts
The headline mentions "strong results". But what do we actually mean by "strong results"? You have to distinguish between solid intrinsic performance, such as accelerating profit growth, and performance versus analysts' forecasts
As you know, a share price reflects the future expectations placed on it. So if the market was already EPS to double and the company reports a 90% increase, you can indeed expect a negative reaction
But the devil is sometimes in the details. Details that are not trivial for those who closely follow a stock's momentum. Take Legrand, for example, whose valuation rests in part on growth in its data-center business, expected to rise by 30% over the year. That segment, though it represents only a quarter of sales, will capture (almost) all the attention on February 12 when results are released. Why? Because it is what feeds the market narrative around the stock.
Beating expectations is good. Feeding the right narrative is better.
When the outlook worries
The most classic source of disappointment is, of course, a miss versus analysts' expectations. But a group can beat those expectations and still fall on the market
That is because management also sets out its own forecasts for the quarters ahead at the same time. A company may have benefited from a favorable environment over the period just ended, yet see fog on the horizon. Last year, international groups that flagged tariffs as a particular concern in their results presentations ended up being punished by the market. In the same way, a company may signal a coming slowdown in production, tougher competition that could erode margins, or constraints that will curb customer spending. The market does not ignore such signals.
And the higher the valuation, the more demanding the market becomes. In luxury, for instance, releases from Hermès, however solid, tend to generate little enthusiasm. When excellence becomes the norm, you have to keep surpassing it to trigger a positive reaction.
Exogenous factors
Two recent examples illustrate the importance of exogenous factors. Still in luxury, Compagnie Financière Richemont has just published Q3 results for its fiscal year. Although the group beat revenue expectations, with good geographic momentum and strength in jewelry, the stock fell. The culprit: macroeconomic headwinds weighing on margins. First, the surge in gold prices increases production costs in jewelry, and tariffs as well as currency swings are also weighing on margins.
This release is also a good textbook case from another angle. With Richemont reporting ahead of its competitors, those peers also suffered in anticipation from the same headwinds. A reminder that the timing of a release can influence an entire sector.
In the exogenous-factor category, there is one particularly active player in Washington. Donald Trump has just called for credit-card interest rates to be capped at 10%. In this case, markets have had time to digest the news and Visa, Mastercard and American Express have already plunged this week. If their results had been published right after the announcement, the numbers would probably have been eclipsed by immediate concern. You have to keep your eyes everywhere: on the numbers, but also on stakeholders' news
Communication
"Earnings calls" accompany each set of corporate results. These conferences allow executives to expand on strategic priorities and answer questions from the analysts covering the stock, providing more detail on what they have just presented to the public. It is a valuable moment for shareholders to better understand management's priorities and the group's outlook (transcripts of these calls are also available here). Analysts use them in particular to adjust their outlooks and therefore their price targets
An executive departure announced at such a time can unsettle investors. Changes in management are also a source of volatility. Shareholders handed the keys to the truck to one team; if that team changes, the reading of the company's future changes with it
The examples above clearly illustrate the need to take into account the entire ecosystem around each holding in your portfolio in order to navigate this period with confidence. May this earnings season be favorable to you, dear investors.
