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Essential Lessons From Earnings Season Revealed

By:Kai Zeng

While the Dow has become a beacon of optimism by returning nearly 50% since the start of this year, the average return across all companies reporting earnings balanced out to exactly 0%.

The third quarter earnings season has once again brought a flurry of activity to the stock market as traders and investors alike scrutinize the financial health of over 3,000 companies. Amid the deluge of reports, the Nasdaq-100 Index (NDX) has demonstrated remarkable resilience and strength, significantly outperforming other major indices, such as the S&P 500 (SPX) and the Dow Jones Industrial Average (DJIA). With an impressive return approaching 50% since the start of this year, the Nasdaq's performance is a beacon of optimism for traders looking for growth opportunities.

Earnings Analysis

However, high returns come with increased risk. The Nasdaq's annualized volatility tops the charts, reminding traders that the potential for significant gains often coincides with greater market swings. In contrast, the Dow Jones, known for its more stable blue-chip constituents, has maintained its position as the index with lower volatility.


A closer look at the Nasdaq reveals its stellar performance can largely be attributed to the heavyweights in the Nasdaq-100 Index (NDX). These top 10 weighted companies average a staggering 97% return, underscoring their pivotal role in driving the index's growth. Notably, Nvidia (NVDA) has seen its stock soar by 250%, buoyed by the surging demand for artificial intelligence technology. Nvidia’s success story is a testament to the lucrative potential of investing in cutting-edge sectors.

Q3 Earnings Analysis

Despite the standout performance of certain tech giants, the broader market has painted a more subdued picture. Nearly half of the companies reporting this quarter experienced a positive return the following day, yet the average return across all companies balanced out to exactly 0%. This neutral outcome is in line with historical patterns observed since 2020, where post-earnings performance in the third quarter has hovered around the zero mark.

2023 average returns

The stock market's inherent unpredictability is further highlighted by long-term data. Over the past four years, the average stock performance following earnings announcements has been a modest 0.1%. Moreover, the probability of a company posting a positive return after earnings over the long term is a coin flip at 50%.

Earnings Analysis Averages

Four-year average ratio of negative to positive

For traders, these takeaways underscore the importance of thorough research and a balanced portfolio. While the lure of high-performing stocks like those in the Nasdaq 100 is enticing, the market's unpredictable nature demands a strategy that is both vigilant and adaptable. As the average performance following earnings releases tends to be neutral, traders should consider diversifying their holdings and not rely solely on post-earnings movements. Instead, focusing on long-term trends, sector strengths and company fundamentals may provide a more stable path to profitability.

Kai Zeng, director of the research team and head of Chinese content at tastylive, has 20 years of experience in markets and derivatives trading. He cohosts several live shows, including From Theory to Practice and Building Blocks. @kai_zeng1 

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