Quarterly Outlook
Q3 Investor Outlook: Beyond American shores – why diversification is your strongest ally
Jacob Falkencrone
Global Head of Investment Strategy
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Earnings season: What to look for
Quarterly earnings
Ruben Dalfovo
Investment Strategist
Key takeaways
- Prices move on surprises; bellwethers set tone; single-stock gaps drive big swings
- Look past headlines: revenue, margins, and guidance matter; strip one-offs; follow free cash flow
- Verify with calls and day-two moves; use read-throughs across peers and ETFs
What to track in-season
Start simple: three signals do most of the work—expectations vs results, bellwethers, and single-stock surprises. Track these and you’ll understand most of the market’s reaction.
Market vs expectations
Prices move on surprise, not on size. Compare revenue and EPS to analyst consensus, then note guidance raises or cuts. Breadth matters: when many sectors beat at once, risk appetite improves; when misses cluster, sentiment sours. Revisions into and out of the season often preview the reaction.
Bellwethers and read-throughs
Early bank results set tone for credit and the consumer. Industrials like Caterpillar and Honeywell hint at supply chains and global demand. Later, mega-cap tech updates shape sentiment on growth and capex. Retailers close the loop with a clean read on household spending. One leader’s print often ripples to suppliers, rivals, and sector ETFs.
Single-stock surprises and timing
Earnings often land pre-market or after-hours, so gaps up or down are common. Day-one moves can overshoot; day-two drift can confirm or reverse. Options pricing (implied volatility) tends to peak into the print, then deflate. Order types such as stop-limit or trailing stop exist but carry gap risk—understand mechanics before use. The key is context: quality of beat, guidance tone, and whether the move was already priced in.
Numbers that move markets for investors
Not every line in an earnings report is equally important. Some metrics matter far more for stock prices. Investors who focus only on headline revenue risk missing the drivers of reaction.
Revenue and EPS
Start here. Revenue shows growth, but context matters. Was it organic or acquisition-driven? Constant currency or boosted by FX? Did it beat consensus? Earnings per share (EPS) compares profit against expectations. A headline beat can still sell off if quality is weak or the outlook soft.
Margins and costs
Profit margins reveal pricing power and cost discipline. Rising costs can eat into profits even if sales climb. Investors watch gross margin (sales minus direct costs) and operating margin. Operating margin adds overheads. Watch the trend, not a single quarter. Rising input costs, mix shifts, and promotions can erode margins even when sales rise.
Guidance and tone
The future drives price. Forward guidance is often more important than reported results. Guidance on revenue, margins, capex, and free cash flow sets expectations. Earnings calls, where executives answer questions, give clues through both numbers and tone. Changes to outlook often move the stock more than the reported quarter.
Extras that matter
- Free cash flow. Signals ability to reinvest or return cash.
- Shareholder returns. Dividends and buybacks support valuation.
- One-offs. Write-downs, restructuring, or stock-based compensation can distort results.
Investor playbook
- Check surprise vs consensus. Compare revenue and EPS to forecasts. Size of surprise drives reaction.
- Read guidance changes. Note upgrades, downgrades, and ranges for revenue, margins, and FCF.
- Follow margin direction. Gross and operating margins show pricing power and cost pressure.
- Separate one-offs from run-rate. Strip out restructuring, SBC, FX, and inventory effects.
- Track cash quality. Free cash flow, dividends, and buybacks validate the story.
- Listen to the call. Q&A tone and details often explain the move.
- Watch post-print behaviour. Day-two drift and estimate revisions confirm the new narrative.
- Use read-throughs. Apply leader results to suppliers, customers, and sector ETFs.
A story by numbers
The headlines rarely tell the full story. Earnings move markets when they reset expectations. Three signals matter most: revenue versus consensus, margin direction, and forward guidance. Cash generation and clean accounting separate durable progress from one-off beats. The main risk is misreading the setup—expectations, one-time items, and tone can distort the picture. Use transcripts, guidance changes, and post-print estimate revisions to confirm what the market just learned. In earnings season, clarity beats speed—let the numbers tell the story.
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