Earnings season began this week. Earnings season is the period of time when participants (investors, analysts and traders) get to review companies’ report cards (i.e. financial statements), hear from CEOs and dissect pro forma insight. Earnings season typically starts two to three weeks following the quarter’s end. This quarter is being met with high expectations.

During earnings season, everyone should be prepared to witness some surprises, including stock price swings. Earnings season offers participants to peer into companies’ financials to confirm or refute their expectations. Any significant negative deviation from those expectations or undesirable forward-looking statements can result in a jolt to stock prices. Likewise, should report cards perform better than expectations or should favorable statements be made, stock prices can leap forward.

The financial media savors the season as they often become the primary delivery point. Financial media provides coverage of recaps, expectation fulfillment as well as fodder for talking heads. Most sports have talking head euphoria occurring annually during championships. The stock market has the privilege four times a year.

To market watchers, earnings season can be an exciting time. Investors’ investment thesis can be confirmed or denied. If confirmed, do they continue with their vision? If denied, what adjustments should be made? For more astute and seasoned investors, earnings season is a time to reflect on past decisions in an effort to improve future calls. (Humble contemplative money managers are managers we prefer.) At the same time, trading sentiment can turn on a dime, so traders need to be prepared to accommodate the flow.

For this year’s second quarter, profit and revenue expectations are set pretty high. Much of this is due to the economic impact of COVID. The second quarter of 2020 was the first full quarter to confront the COVID obstacle. Hence, last year’s comparative quarter was unnaturally suppressed. Additionally, this year’s second quarter was the first full reopening quarter which was accompanied by tremendous economic promise.

No doubt, this can be an exciting time. But for more typical clients, the activity is a non-event and often ignored. Rightfully so as our clients’ portfolios have incorporated potential event volatility. Earnings season is much like baseball signals. The signals are meaningful to participants (the baseball players), but meaningless (and incomprehensible) to spectators. One noted difference is that earnings season and its details are more apparent to clients thanks to the media’s news parade. The reality is… earnings seasons is inside baseball, meaningful to market participants and meaningless to spectators.

In the end, earnings season is a time to reflect on the achievements or misses of a company, similar to a child’s semester grades. Did she get an A, B, C or D? By its nature, a child’s grades as well as earnings season are historical. We can’t do anything about the past, but how we utilize this information to form future choices is the better question to ask.