Stock Reaction to Earnings Reports This Season

Here at Bespoke we track anything and everything that occurs during earnings season.  One of these things is how stocks are reacting on the day of their earnings reports.  When earnings season is going well, stocks are reacting positively to their reports more often than not.  This has been the case so far this earnings season, as the average stock that has reported has gained 0.79% on its earnings report day.  (For companies that report after the close, we use the next day's change.)  Companies that have beaten estimates have averaged a one-day change of +2.18% on their report days, and companies that have missed estimates have averaged a one-day change of -2.37%.

We also calculate the average gap at the open for companies that have reported as well as the average open to close change.  This allows us to see if most of the move in reaction to earnings is coming in the post- and pre-market or during regular trading hours.  So far this earnings season, the average stock that has reported earnings has opened higher by 0.32%, meaning it has averaged a gain of 0.32% from its close the prior day to its open at 9:30 AM ET the following morning.  During some earnings seasons, the average stock that reports will open higher but then get sold off during regular trading hours from 9:30 AM ET to 4 PM ET.  But this earnings season, the average stock is opening higher (by 0.32%) and then continuing higher from the open to the close by an additional 0.45%.

Looking at just companies that have beaten earnings estimates, the average stock has opened up 1.44% and then continued higher from the open to the close by an additional 0.71%.  A lot of times traders will see a stock that reported strong numbers trade up big at the open and think to themselves, "I wish I had bought that stock before it reported earnings."  But with open to close gains like we've seen this season, waiting to see how the company reports and then buying at the open has been a winning strategy with not nearly the same amount of risk as there is when buying before the earnings report is released.

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