The screening features available with our popular Earnings Screener are pretty much limitless. Last week when Warren Buffett and Jamie Dimon together called for companies to end the practice of issuing quarterly guidance, we immediately thought about the impacts that it might have on stock prices.
The end to quarterly guidance would have its pluses and minuses, but one theory is that it would cause a spike in individual stock price volatility when earnings reports are released. Less info provided by companies heading into their quarterly reports would cause greater surprises when the actual numbers are released (on both the positive and negative side).
From our Earnings Screener, users are able to see how much stocks typically move (on an absolute basis) on the first trading day following their earnings report each quarter. Below is a chart showing the average absolute percentage change for US stocks on their earnings reaction days by year going back to 2001.
As you can see, the average stock typically experiences a one-day move of +/-5% on its earnings reaction day each quarter. The two outlier years came during the Financial Crisis in 2008 and 2009 when stocks moved more than +/-7% on their earnings reaction days.
Should companies collectively decide to end the practice of issuing forward guidance, we think you’d at least initially see a jump in the average move up towards and maybe even above +/-6%.