Several of the biggest U.S. companies are set to report their quarterly earnings, perhaps the most significant week so far this earnings season.

This week is a big week for stock investors.

Numerous of the biggest U.S companies are reporting their third-quarter earnings to shareholders, potentially making it the most significant week so far this earnings season.

However, the big question is, why should investors and traders pay attention to them?

Earnings as a company ‘report card’

Earnings is another word for profits. Once a calendar quarter comes to an end, publicly traded businesses must disclose their revenues, profits and other performance measures to analysts and shareholders. Hence why some treat it like a company ‘report card’.

The vital period of earnings season is generally two to five weeks after a quarter ends. According to FactSet about 20% of companies that find themselves in the S&P 500, the index of the biggest U.S corporations, had already reported their third quarter figures as of Friday.

This week, another 120+ companies are set to report. Including some of the biggest tech players such as Microsoft, Alphabet (Google parent), Meta (Facebook parent), Apple and Amazon. As well as companies like Coca-Cola, Boeing, Comcast, Ford, Intel, General Motors, JetBlue, Kraft Heinz, McDonald’s, and UPS.

Quarterly earnings reports could move a stock’s share price   

Earnings are an important driver of a stock’s share price. Firms may reinvest their earnings (profits) to develop their businesses further or return earnings as dividends to shareholders.

On occasion, even well-known or ‘healthy’ firms may report a fall in quarterly profit. Although, continuous earnings growth usually links to a higher stock price over the long term.

The stock market has a tendency for looking forward. Senior earnings analyst at FactSet, John Butters said, “The market is always looking ahead. What companies report now is sort of in the rear-view mirror”. Consequently, a company that releases financials which match expectations may not necessarily see much movement in its share price. This is because investors had already priced in those estimates.       

Whereas firms that surprise the rest of us towards either the upside or downside could see short-term movements. According to FactSet, declining by about 2% and rising by 1% on average.

The financial metric measures the S&P 500 companies' stock prices in the two days prior to and after an earnings report. Disappointing results amongst many firms tend to be a negative economic indicator.

(Sources: FactSet.com, CNBC.com)