: 3 key numbers in company earnings reports to watch out for this earnings season

by | Jul 17, 2022 | Stock Market

People deciding where to invest their cash — or whether to even do it at all — have questions about the possibility of recession, how much inflation is squelching consumer demand and when prices could be cooling. Now that earnings season is about to start, they’ll be getting Corporate America’s take on the answers.

Starting this week and running through July, the country’s publicly traded companies are scheduled to reveal their second quarter earnings and share their best guesses on what’s in store for future bottom lines. Big banks kicked off the season on Thursday when J.P. Morgan
JPM,
+4.58%
and Morgan Stanley
MS,
+4.50%
report. Both banks’ earnings missed estimates. Companies including Bank of America
BAC,
+7.04%,
Tesla
TSLA,
+0.74%,
Netflix
NFLX,
+8.20%
and American Express
AXP,
+4.40%
are slated to report next week. The parade of profits, losses and projections happens every quarter under U.S. rules. The numbers also offer a peek at the financial health of consumers and the broader economy. This time, earnings season is coinciding with a volatile bear market that’s getting rocked by all sorts of questions: What to make of Omicron subvariants, or China’s lockdown policy and its supply chain implications? Where are oil prices going as Russia’s Ukraine invasion grinds on? How is American consumer demand holding up against four-decade-high inflation? That point was underlined by inflation data Wednesday showing the cost of living increasing a hotter than expected 9.1% year-over-year in June. And, of course, what’s the chance this all culminates in a recession? Don’t dismiss earnings reports and calls as PR spin, because they can provide real insights, said Bryan Routledge, a professor at Carnegie Mellon University’s Tepper School of Business. And useful information is at a premium now, he added. “Information is more important when the world is more volatile. … The range of information, the bunches of things that could be influencing those earnings, are much more now than the simple world we lived in three years ago.” The Dow Jones Industrial Average
DJIA,
+2.15%,
S&P 500
SPX,
+1.92%
and Nasdaq Composite
COMP,
+1.79%
all opened sharply lower on Thursday. The Dow dropped roughly 550 points, or 1.8%, the S&P declined 1.5% and the Nasdaq dropped by 1.4% as investors braced for earnings season and mulled the Federal Reserve’s next move to tame inflation.Stock picking is a risky endeavor “There are more questions that need to be answered this earnings season than any previous earnings season I can remember,” said Victor Jones, chief global strategist at tastytrade, which offers brokerage services and trader education. They include how consumer behavior is changing, and who is — and isn’t — profiting as a result, he said. “Answer to questions, instead of more questions, would be a welcome phenomenon to market participants at this point,” Jones added. Company cash flow, profit margins and any forward guidance are three important tidbits to get at the answers, Jones and other experts told MarketWatch. Then it becomes a matter of whether investors with quarterly results in hand should even act on those answers. Stock picking is a risky endeavor in any market, let alone this one. So are quick purchases and sales based on earnings results — especially during the extended session when many companies release their numbers. But if retail investors want to take their chances, it’s best to make informed decisions. The same goes if investors want to perform due diligence on the companies where they are already shareholders, or if they want to check th …

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