Today we hosted our Q4 Outlook presentation for all Bespoke clients at 2 pm ET in which we discussed our views on what to expect for the balance of 2016. The Q4 Outlook presentation and audio recording of the call are available for paid members only. You can become a member with one of our three subscription levels, descriptions of which can be seen at our Bespoke Research Packages page. If you are already a member, please login here to view the replay and slides.
In our prior post, we highlighted the sectors that have historically seen stocks beat earnings estimates the most and least often using our Interactive Earnings Report Database. Below we highlight how volatile stocks are on their earnings reaction days by sector. Before proceeding, though, we just want to explain what an “earnings reaction day” is. For a stock that reports earnings pre-market before the open of trading, its earnings reaction day is that trading day. For a stock that reports earnings post-market after the close, its earnings reaction day is the next trading day.
Using earnings reaction day price change data for more than 130,000 individual quarterly earnings reports going back to 2001, the average stock that reports earnings experiences a one-day change of +/-5.3% in response to that report.
Unsurprisingly, Technology stocks are the most volatile in response to earnings with an average earnings reaction day change of +/-7.3%. The second most volatile sector is Consumer Discretionary, whose stocks average a move of +/-6.1% on their earnings reaction days. Health Care stocks rank third at +/-6.0%, followed by Industrials at +/-5.4%.
Six sectors are less volatile than average — Consumer Staples, Telecom, Materials, Energy, Financials and Utilities. As you would expect, Utilities stocks are the least volatile in response to earnings reports with an average one-day change of just +/-2.2%. The Financial sector is the second least volatile with an average earnings reaction day change of +/-3.2%. For actionable earnings-season analysis, start a 14-day free trial to Bespoke’s premium research today!
The Q2 reporting period is set to begin next Monday, July 11th when Alcoa (AA) reports earnings after the close. Between now and next Monday, Bespoke will be publishing a good amount of earnings related-content. We’re able to do this because we have a gigantic database of quarterly earnings reports for individual stocks going back 15 years to 2001. This database — the Bespoke Interactive Earnings Report Database — is available to Bespoke Institutional subscribers right on our website. If you’re interested in gaining access, you can learn more about it here.
We have more than 130,000 quarterly earnings reports for individual stocks in our database, and we can combine and filter these reports in a number of ways. One way is to analyze earnings trends by sector. Below we provide a chart showing the historical earnings beat rate by sector. The “earnings beat rate” is the percentage of time a company reports actual earnings that are stronger than consensus analyst earnings estimates. Before looking at sector stats, we want to point out that for all quarterly earnings reports over the last 15 years, the average stock has beaten earnings estimates 61% of the time.
Notably, just three sectors have earnings beat rates that are stronger than the average beat rate of 61% for all stocks across all sectors. These three are Technology, Consumer Discretionary, and Industrials. The Technology sector has far and away the strongest earnings beat rate at 70%. That’s important because Tech has the largest weighting in the S&P 500 at 20%. Consumer Discretionary has the second strongest beat rate at 63%, and Industrials ranks third at 61%.
Health Care, Consumer Staples, and Financials have beat rates just under 61%, while Telecom, Energy, Utilities, and Materials have the lowest beat rates in the market.
