Chapter 7-3 Earnings, News, and Economic Data

Earnings, news, and economic data all have a similar effect on stocks.  Each causes a large increase in volume and volatility as stocks quickly and violently adjust to the new wave of information.  There are many different ways new information can be first released.  The most popular news feeds include Bloomberg, CNBC, and audio services, such as Trade the News and The Fly on the Wall.  Always use caution though when trading any of these events as quick, often unexpected, gaps in price can transpire causing large gains or losses.


Earning season is typically a time when the stock market as a whole has its greatest volume and range.  These seasons occur quarterly, with the majority of stocks reporting four times a year.  Typically, the most active earnings months are January, April, July, and October.  You should always be aware of what stocks are reporting earnings for the day as such information will have relevance not only in that stock with earnings, but also in the entire sector in which that stock trades.  An earnings calendar consisting of dates and times of scheduled company earning announcements can easily be found all over the Internet.  Yahoo! Finance and are two accessible sites that provide this information free.  It is important to use caution when trading a stock with earnings for that day, especially during the first 15 minutes after the open, as the stock will most likely move rapidly with abnormally large volume.


News such as court decisions on company liability, CEO changes, takeover speculation, and upgrades or downgrades all instantly impact stocks when released.  This information can be released at any time during the trading day, and usually causes sharp spikes in price and volume.  There is often consolidation sometime after the violent adjustment to the news has been traded, so try to avoid churning.  Keep in mind that the importance of a particular announcement diminishes as time elapses.  Therefore, it is critical to consider how long the information has been available to the public, and has that news already been factored into the current price.  Sometimes not entering into a trade is the best move.  If you are “too late to the party” you run the risk of entering at the end of the move, which can be very costly.

Economic Data

Economic numbers often have a large impact on the general trend of the market once released.  Positive or negative economic reports can influence any stock in the stock market.  You should always be conscious of what economic data will be released each day and at what time.

The following data and surveys described below are specific to the US; however, most countries produce similar reports and calculations.

Capacity Utilization – Measures the degree in which all factories are being used.  This calculates the total industrial output divided by the total production capability.

Industrial Production – Reports the total, as well as change in, output for the industrial sector.  This includes factories, mines and utilities within the US.  This indicator is commonly used aide in forecasting future GDP and economic growth.

Productivity – Measures the change of goods and services produced per unit of input.  This indicator is an important component of growth.

Factory Orders – Refers to the total orders of durable goods and non-durable goods.  This report shows the pace of factories for the coming months.

Construction Spending – Refers to the total capital spent on materials and services used for construction.

Business Inventories – Refers to all items produced over a specific period of time, but were never sold and are held for future sales.

Durable Goods – Equals the total sales of goods that have a greater life than 3 years.  This indicator measures consumer’s tendency to spend, as well as consumer confidence over a substantial period of time.  This report is released towards the end of each month at 8:30 am EST.

Employment Cost index – Measures the changes in wages, salaries, and inflation, as well as other benefits in non-agricultural industries.

Initial and Continuing Jobless Claims – Two separate reports which track the number of people who have filed for unemployment.  This information is released every Thursday at 8:30 am EST.

Unemployment Rate – This calculates the percentage of the workforce that is unemployed; in other words, people who actively are looking, but are unable to find a job.  This report is commonly released at 8:30 am EST on the first Friday of every month.

Leading Economic Indicator Index – A key index used to forecast future economic activity.  This index consists of 10 different indicators:  vendor performance, change in sensitive material prices, average work week, weekly jobless claims, new orders for consumer goods and materials, business permits, the S&P 500 stock index, inflation-adjusted money supply, the yield curve, and consumer expectations.  All indicators are equally weighted since all of them are relevant to the economy.

University of Michigan Consumer Sentiment Index – A survey conducted by the University of Michigan on consumers which provides insight on how consumers are feeling.

Philadelphia FED Survey – A regional index conducted by the Federal Reserve Bank of Philadelphia that measures changes in the business growth of the manufacturing industry.

Non-farm Payrolls Report (NFP) – Calculates the number of jobs created for a given month outside the agricultural industry and government agencies.  It is used as an indicator of strength for the labor market, which helps determine the state of the domestic economy.  This report is commonly released on the first Friday of every month.

ISM Manufacturing Index – The Institute of Management Suppliers (ISM) conducts a survey on business executives regarding their assessment of future business conditions.  This is an important indicator, because the ISM is usually the first indicator that reveals signs of a turn around after a period of recession or constant growth.

Retail Sales Index – Measures consumer expenditure by calculating the sales of retail stores (including durable and non-durable goods), while excluding services.  By excluding services it measure less than half of total consumption, thus providing limitations to its usefulness.  This index is commonly released at 8:30 am EST around the second week of each month. Producer Price Index (PPI) – Measures the change in price of goods and services producers use in production from the seller’s perspective.  This report is commonly released at 8:30 am EST around the second week of each month.

Consumer Price Index (CPI) – A widely used index designed to measure inflation by calculating the change in price of a fixed basket of basic goods and services.  It is intended to measure pure price changes while leaving out the changes in quality of goods and services.  This report is commonly released at 8:30 am EST around the second week of each month.

Core Consumer Price Index – The same as Consumer Price Index expect this excludes food and energy, which are two of the most volatile components in the CPI measurement.  This indicator shows a more stable version of price changes.

Consumer Confidence Index – A survey conducted using over 5,000 consumers, which measures how confident consumers are in a given month.  Consumers are asked questions concerning their perception of the economy, current business conditions, as well as future expectations.  This index is released at 10:00 am EST on the last Tuesday of each month.

TIC Data – Reports the amount of US treasuries and US Dollars denominations foreigners are holding.

G7 Meeting – Important worldly meeting in which the 7 largest economies in the world (along with other vital economies) discuss various global issues.

US Trade Balance – Measures the net exports and imports of goods and services of the US.  This is the trade flows component of the balance of payments, which measures the demand and supply of one currency as explained before.  It is important to note that the US has a negative trade balance against almost all countries in the world.  This report is released every two months. US Gross Domestic Product (GDP) – Measures the value of goods and services (total production) produced within the borders of the United States.  GDP includes:  consumption, private investments, government expenditure and exports


less imports.  The most important component of this announcement is the change (in GDP) between the actual month and the same month of the previous year.  This report is released at 8:30 am EST on the last day of each quarter. US Federal Interest Rate Decision – Interest rates are a measure of the cost of money.  Central banks use interest rates as a tool to accomplish certain goals and objectives, such as combating inflation and promoting growth.  This report is released at 2:15 pm EST, 8 times a year.

Minutes of FOMC – Minutes of the Federal Open Market Committee (FOMC) provides some insight on the monetary policy decision (three weeks after their actual monetary policy decision).  These minutes shed light on the how the Federal Reserve sees current economic conditions, what they expect for the future, and general commentaries on market indicators such as inflation.  While the information of the FOMC Minutes are essentially are already priced into the markets, it does give evidence whether a hike or cut on interest rates is more likely.

Beige Book – This is a summary of economic conditions in each of the Fed’s regions and is a part of the FOMC’s preparations for its meetings.  The report is mostly seen as an indicator of how the Fed may act at its upcoming meeting.  The report is released eight times a year, two Wednesdays before each FOMC meeting at 2:15 pm EST.

Housing Starts – Refers to the number of privately owned new homes on which construction has been started in a given period.

Building Permits – Refers to the number of individual building permits are requested in a given period.  This is considered a leading indicator, as building permits usually precede the start of financing, construction, furnishings, and employment.

New Home Sales – Records sales of newly constructed residences in a given period.  While the indicator is calculated monthly, it also is calculated yearly as well as compared month over month and year over year.

Existing Home Sales – Tallies the number of previously constructed homes, condominiums, and co-ops in which a sale closed during a given period.  While the indicator is calculated monthly, it also is calculated yearly as well as compared month over month and year over year.

DOE Oil Inventory – The Department of Energy (DOE) reports the inventory levels of various forms of oil each week.  The most scrutinized inventory reports include those concerning Crude Oil, Gasoline, and Distillate, as well as the US Refinery Utilization, which is given as a percentage.  These reports are released every Wednesday at 10:30 am EST.

EIA Natural Gas Storage Change – This report, created by the Energy Information Administration (EIA), provides a weekly gauge of working gas volumes in underground natural gas storage facilities.  This report is released every Thursday at 10:30 am EST.


Prudence is needed when trading any of these events (earnings, news, or economic data) as the volatility greatly increases during these occurrences.  Always follow the 3:1 reward to risk ratio.  Also, remember never to enter into a trade simply because you feel fundamentally the stock must go that way due to the information that was just released.  Do not create opinions solely on the fundamentals.  Trade what you see!






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