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Earnings season is less than a week away; officially beginning on Monday, July 8th.

Given the market's spectacular rise in the first half of the year (up 13.33%) and the unfortunate pullback from the highs in June (off -7.52% at its worst), a lot is riding on this earnings season.

So I wanted to see how the market fared during each earnings season in the recent past, and if history would be able to give some clues for what might be in store this time around.

This Earnings Season

Alcoa has the distinction of being the 'official' start of earnings season, but not because it's some great barometer of the broader market. In fact, many people discount Alcoa's earnings as being largely irrelevant at predicting how any particular earnings season will go.

Instead, Alcoa has become synonymous with the start of earnings season simply because it's the first blue chip stock in the Dow Jones to report earnings each quarter. It's been that way for some time and that tradition has stuck.

On July 8th, after the close, AA will report earnings, and the rest of the season's fanfare will begin.

Past Earnings Seasons

Rather than analyze the ups and downs of earnings forecasts for the S&P, I want to look at the actual price performance of the index during each earnings season since the bull market began in 2009.

Granted, since the market has been in an uptrend, there is, of course, an upward bias to this study. But the numbers still reveal something about earnings season, and the period immediately following it.

The Numbers

Over the last 4+ years (17 earnings seasons) beginning in 2009, I set out to see how the market performed during that very specific window when earnings season is in full swing.

I used the earnings announcement of Alcoa as the start date for each period and then tracked how the market did for the next 5 weeks. (That roughly coincides with the unofficial end date of earnings season, which is marked by Hewlett-Packard's earnings, i.e., the last of the Dow components to announce earnings.)

Over the last 17 earnings seasons:

  • the median return for the S&P was 3.82%

  • 12 out of 17 (or 71%) of the periods were winners

  • the largest winning period was 14.35%, while the worst losing period was -8.72%

  • the most recently completed earnings season saw the market gain 4.52%

  • there's a greater chance of having a positive earnings season if the last earnings season was positive as well

I found these statistics to be quite interesting. So I expanded my study.

Expanded Study

Next, I wanted to see what the market did in the 30 days following earnings season.

Here's what I found:

  • the median return for the S&P was 2.22%

  • 10 out of 17 (59%) of those periods were winners

  • the largest winning period was 6.48%, while the worst losing period was -5.66%

  • the most recently completed 30-day post earnings period was off -1.30% (part of the drop we saw after the Fed's 'taper' talk)

  • 8 out of 12 (67%) periods where the earnings season was positive, the following 30 days were positive as well

  • if the earnings season was negative, there was a greater likelihood that the following 30 days would be negative as well

Note: as I mentioned earlier, the market has been in an uptrend (last month notwithstanding). But, in all fairness, we've had some exceptionally volatile periods during this bull market run-up, with some gut wrenching drops. So while an upside bias does exist and is likely showing up in this study, there is clearly a higher probability of success during earnings season, and shortly thereafter, which appears to be more than just coincidence.

Now What?

The bull market is still clearly intact. And it will take a lot more than a bad month to kill off one of the best stock market rallies in recent memory.

The economy, while it could be growing faster, has been growing fast enough to increase employment and spur record corporate profits.

Whether the Fed tapers by year's end is unknown. But the attractiveness of stocks continues, and is likely to keep this bull market going for a while longer. Keep in mind, lost in all of this taper talk was remarks that interest rates were likely to stay where they are until 2015! So it looks like there's much more to go in this rally.

To get ready for this upcoming earnings season, here's a screen to help find stocks with a high probability of positively surprising in the coming weeks.

  • Zacks Rank less than or equal to 2
    (Only Zacks Rank #1s (Strong Buys) or Zacks Rank #2s (Buys). These stocks are the ones receiving the best upward earnings estimate revisions. Especially significant going into an upcoming earnings report.)

  • Last EPS Surprise greater than 0%
    (Stocks posting positive surprises have a tendency of surprising again.)

  • Last Sales Surprise greater than 0%
    (A positive sales surprise shows top line strength.)

  • Net Margin greater than Net Margin from 1 Quarter Ago
    (Seeing a company earn more for every dollar of sales a company makes bodes well for another bottom line beat.)

Here are 5 stocks that came thru this screen that will be reporting within the next few weeks:

(ABG - Free Report) Asbury Automotive Group, Inc.
(reports on 7/23)

(CAKE - Free Report) The Cheesecake Factory Inc.
(reports on 7/24)

(ICLR - Free Report) ICON Public Ltd. Co.
(reports on 7/22)

(NCR - Free Report) NCR Corp.
(reports on 7/19)

(PNC - Free Report) The PNC Financial Services Group, Inc.
(reports on 7/17)

Each one of these stocks is a top Zacks Ranked stock that positively surprised their last time out, has been beating the market, and is due to report earnings within the next few weeks.

Start using the Research Wizard in your own trading to find your own high probability stocks. Or pick and choose from the strategies that Zacks has already created that come loaded with the program. And backtest them all to see how successful your stock picking strategies have been before you place your next trade. It's all here.

Sign up for a free two week trial to the Research Wizard today.

Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.

Disclosure: Performance information for Zacks’ portfolios and strategies are available at:

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