Your Guide to Earnings Season

I know earnings season can be a bit confusing for investors, so here’s my effort to make this trying time a little less confusing.

First, Advanced Micro Devices led off earnings season when it said that its profits dropped by 65%, but—and this is crucial—those profits were above Wall Street’s expectations, so the stock went up.

See? It’s all about expectations.

Intel’s earnings, on the other hand, were exactly in line with Wall Street’s expectations and the stock went down. So it’s not all about expectations per se. You’re not expected to do what’s expected, but you’re expected to beat expectations. That’s the key. If not, people will expect that other people will sell your stock. So those first people will sell, and you don’t want that.

Are you following this? Good.

Now Ford’s earnings dropped by 19%, but it beat expectations by 14 cents. So the stock went down by nine cents. Now an amateur investor might think that Wall Street is simply out of its mind. Not true. The reason Ford why dropped: profit-taking. Some people said it was a correction, but it wasn’t. It was profit-taking. Just trust me on this.

Now Jamie Dimon of JPMorgan Chase is a very smart CEO. On June 1, he said that their earnings were going to be bad: “Absent any improvements in June, we expect our trading results to be worse this quarter than they were in the third quarter last year, which was a terrible quarter.” Pretty scary. Wall Street took the bait and dropped its expectations. The day of that announcement, the stock went up by a penny. And today, JPMorgan Chase reported that it beat those lowered expectations by two pennies.

Of course, the stock is down today, but that was unexpected.

Posted by on July 20th, 2005 at 12:15 pm


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.