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Despite Problems With Short-Term Thinking, We Should Keep Quarterly Earnings

I guess it was bound to happen sooner or later: A reporter asked me to comment on a tweet from President Trump. Two weeks ago, the president addressed quarterly earnings. Here are his exact words:

“In speaking with some of the world’s top business leaders I asked what it is that would make business (jobs) even better in the U.S. ‘Stop quarterly reporting & go to a six-month system,’ said one. That would allow greater flexibility & save money. I have asked the SEC to study!”

I responded to the reporter with several thoughts, which I’ll expound on below to the extent that they concern investing. The aforementioned article can be seen on Bloomberg’s website.

U.S. exchange-listed companies are required to report their earnings on a quarterly basis, including filing Form 10-Q or the annual Form 10-K with the U.S. Securities and Exchange Commission (SEC). They are not legally required to give guidance or be concerned with analysts. There is pressure from investors and traders for companies to match or beat the forecasts that analysts make, however. This pressure leads to short-term thinking on the part of corporate executives that can have longer-term consequences.

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More on AAII.com

  • Using SEC Filings to Identify Risk Factors – These required filings can help you identify potential problems before they wreak havoc with your portfolio.
  • Earnings Estimates – Though the profit forecasts made by analysts are partially to blame for short-term thinking, they are useful for individual investors.

Highlights from this month’s AAII Journal


AAII Sentiment Survey

Optimism among individual investors reached its highest level, while pessimism fell to its lowest level, since June. More about this week’s results.
This week’s results:
  • Bullish: 43.5%, up 5.0 points
  • Neutral: 32.1%, down 2.4 points
  • Bearish: 24.4%, down 2.7 points
Historical averages:
  • Bullish: 38.5%
  • Neutral: 31.0%
  • Bearish: 30.5%

Take the Sentiment Survey.


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The Week Ahead

The U.S. financial markets will be closed on Monday in observance of Labor Day. Have a great holiday weekend!

Though October’s reputation is worse, September ranks last in terms of calendar-month returns. Since 1950, the Dow Jones industrial average and the S&P 500 have incurred average losses of 1.0% and 0.4%, respectively, in September, according to the Stock Trader’s Almanac. However, not every September has been down, and historically the fourth quarter has been favorable for stocks.

Just one member of the S&P 500 will report earnings, Broadcom Inc. (AVGO) on Thursday.

The week’s first economic reports will be the August Purchasing Managers’ Manufacturing Index (PMI) manufacturing index, the August Institute for Supply Management (ISM) manufacturing index and July construction spending, all of which will be released on Tuesday. Wednesday will feature August motor vehicle sales and July international trade. The August ADP employment report, revised second-quarter productivity, July factory orders and the August ISM non-manufacturing index will be released on Thursday. Friday will feature August jobs data, including the change in nonfarm payrolls and the unemployment rate.

Six Federal Reserve officials will make public appearances: Chicago president Charles Evans on Tuesday; New York president John Williams on Wednesday and Thursday; Minneapolis president Neel Kashkari and Atlanta president Raphael Bostic on Wednesday; and Boston president Eric Rosengren and Cleveland president Loretta Mester on Friday.


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