Money Rehab with Nicole Lapin - How Layoffs Affect Stock Prices and Other Earnings Secrets

Episode Date: February 6, 2023

We are in the thick of earnings seasons, which means public companies are showing their financial report cards for the past quarter. Nicole shares the three most important metrics investors need to watch in order to pick winning investments during this financial szn.

Money rehabbers, you get it. When you're trying to have it all, you end up doing a lot of juggling. You have to balance your work, your friends, and everything in between. So when it comes to your finances, the last thing you need is more juggling. That's where Bank of America steps in. With Bank of America, you can manage your banking, borrowing, and even investing all in one place. Their digital tools bring everything together under one roof, giving you a clear view of your finances whenever you need it. Plus, with Bank of America's wealth of expert guidance available at any time, you can feel confident that your

money is working as hard as you do. So why overcomplicate your money? Keep it simple with Bank of America, your one-stop shop for everything you need today and the goals you're working toward tomorrow. To get started, visit bofa.com slash newprosmedia. That's b-o-f-a dot com slash n-e-w pros p-r-o-s media. bfa.com slash newprosmedia. I'm Nicole Lappin, the only financial expert you don't need a dictionary to understand. It's time for some money rehab. We're in the thick of earnings season, the time when public companies report to investors how they did financially over the last quarter. These earnings calls have a big impact on the company's stock price. Now, if you invest in index funds, my fave, earnings calls won't affect your investments because index funds shelter you from the fluctuations of one given stock. But if you invest in specific companies,

you will certainly be affected by their earnings calls. Buying and selling a company stock around earnings is a popular move for day traders, especially buying and selling stock options, which is a trading move that is essentially betting that the price will go in a particular direction after the earnings call. The payoff for sure can be big, but it's far more likely that you'll lose money if you don't know what you're doing, especially if you're new to the world of trading. Now, there are some obvious announcements that can affect a stock price. Like, if a company reports lower measures of financial success, the stock price will go down. If a company reports higher, the stock price will go up. Those are the reports higher, the stock price will go up.

Those are the obvious ones, so we won't dig into those. Instead, let's talk about three lesser-known factors that will affect stock prices around earnings calls. 1. Layoffs Of all the heart-sinking headlines, layoff announcements are the ones that have hit me the hardest. There have been a lot of them lately. Spotify, Tesla, Microsoft, Goldman Sachs, Google, Facebook's parent company Meta, and many more. Layoffs are undoubtedly a terrible thing, but initiating layoffs around earnings tend to make the stock price go up. I know! How can something that's surely bad news make stock prices go up? The thing is, layoffs mean

that a company is cutting expenses, and fewer expenses mean more net profit. That's a trend investors like to see from companies. It inspires confidence in the future performance of a company, and it makes the stock price go up. We saw this this earnings season with Spotify and Tesla. Their stock prices rallied after layoff announcements. This is a situation that perfectly illustrates how shareholders' and employees' interests can sometimes be at odds. And when a public company is in the middle, they tend to align with their shareholders. 2. Analyst Chatter In the financial world, analysts are revered as the fortune

tellers of Wall Street. Analysts give public companies ratings. Typically, there are three, buy, sell, and hold. None of us have crystal balls, including analysts. But sometimes analysts can create self-fulfilling prophecies. For example, if an analyst at a big firm changes their rating of a stock from buy to sell, many investors will do just that and sell. And if many shareholders sell their stock, there's more available shares of the company in the market. And based on the principles of supply and demand, where there's less demand and more supply, prices go down. That is exactly what happens with the stock. A self-fulfilling prophecy, right? Analysts tell you to sell your shares because they think

the price will go down, so people then sell their shares, but then the price goes down. These analyst ratings have the attention of investors and can affect how the stock price performs around earnings. For example, Ford just had their earnings call last week and an analyst at Deutsche Bank just downgraded Ford stock from hold to sell. As a result, Ford stock has fallen 5%. Number three, short-term projections. Now, that obvious trend I told you about, if a company reports that they've beat expectations, the stock price goes up. Well, that's true, unless the company signals doubt that they will continue in an upward trend. This happened with Delta's earnings call.

They aced their earnings call, which should have made their stock price go up. But Delta's CFO said he expected in the next quarter non-fuel unit costs to increase 3-4% and labor cost increases. That signaled to investors that Delta's good returns could taper off next quarter, which caused the stock price to go down. For today's tip, you can dig straight to the bank. Trading stocks is definitely risky and normally requires a lot of money to make a lot of different bets because many trades will fail. However, if there's a particular stock you've been thinking about investing in, investing around earnings can be a good opportunity to buy low. If a company misses their earnings expectations, but you've done your research and you think

that this miss is just a blip in their 10-year time horizon, you can take advantage of the blip dip and catch the stock on a discount. Money Rehab is a production of Money News Network. I'm your host, Nicole Lappin. Money Rehab's executive producer is Morgan Levoy. Our researcher is Emily Holmes. Do you need some money rehab? And let's be honest, we all do. So email us your money questions, moneyrehab at moneynewsnetwork. So email us your money questions, moneyrehab at moneynewsnetwork.com to potentially have your questions answered on the show or even have a one-on-one intervention with me. And follow us on Instagram at Money News and TikTok at

Money News Network for exclusive video content. And lastly, thank you. No, seriously, thank you. Thank you for listening and for investing in yourself, which is the most important investment you can make.