Earnings Season

The crucial, counter-intuitive principle: stocks move on results relative to expectations, not on whether the numbers are “good” or “bad” in absolute terms. The market is forward-looking and has already “priced in” the expected result, so what moves the price is the surprise — the gapA jump between one bar’s close and the next bar’s open. between actual and expected. This is why a company can report record profits and fall (because the market expected even more — a “miss”), and another can report a loss and rise (because the loss was smaller than feared — a “beat”). “Good news” already anticipated is not a positive catalyst; only news that differs from expectations moves the price. This also explains “buy the rumour, sell the news”: a stock often runs up before good results (anticipation) and falls after they’re confirmed (the surprise is gone, expectations were met or the run already captured it). For investors, the practical lessons: (1) judge results against expectations (analyst estimates, guidance), not in isolation; (2) watch guidance (the company’s outlook), which is often more market-moving than the past quarter’s numbers because markets care about the *futureA binding agreement to buy or sell at a set price on a future date.; and (3) beware the volatilityThe size of price swings — not their direction. crush* and sharp moves around earnings (from the optionsThe right, not the obligation, to buy or sell at a set price. track) — earnings are a known event with inflated uncertainty priced in. Don’t be fooled when a “great” result tanks a stock — expectations were the real benchmark all along.