By Steve Goldstein
Earnings season kicks off in earnest on Wednesday with reports from some of the largest banks in the U.S.
Besides looking at earnings per share, revenue and forward guidance, investors might just want to check out weather reports.
That is the conclusion of a research paper, which finds that weather conditions near a company’s major institutional investors affect stock market reaction to that news.
Researchers led by Danling Jiang, a professor at Stony Brook University, say unpleasant weather may trigger physiological and psychological reactions in these investors, which leads to delayed information processing, resulting in more sluggish price reactions to earnings announcements. They examined weather in the two weeks before earnings announcements, for a company’s top 10 largest institutional investors.
Looking at data from 1990 to 2016, they found a one-standard-deviation increase in pre-announcement unpleasant weather leads to a 45 basis point, or 10%, smaller spread between top and bottom surprises. They also found reduced trading activity during unpleasant weather.
That isn’t to overstate the impact. As the chart on average cumulative abnormal returns shows, it is far better for investors to get bad weather and the earnings news to be good, than vice versa. Also, it doesn’t seem to matter what the weather is at the company reporting the earnings — just that of the company’s major investors.
Jiang and her co-authors aren’t the first to study the impact of weather on the stock market. One study from 1993 found that market returns are significantly lower on cloudy days in New York City than sunny days. A 2003 study of 26 major stock markets across the globe found sunny weather induces optimism and more risk taking, while cloudy weather does the opposite.
For what it’s worth — the weather across the U.S. was 13% warmer than normal in March, according to the American Gas Association.
Something else to note is what day of the week it is. Previous research has found that investors are less attentive to earnings announcements occurring on a Friday.
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Heavyweight banks JPMorgan Chase /zigman2/quotes/205971034/composite JPM +0.71% , Goldman Sachs /zigman2/quotes/209237603/composite GS +0.61% and Wells Fargo /zigman2/quotes/203790192/composite WFC +1.66% kicked off earnings season, with all three lenders beating estimates on both the top and bottom lines.
Software giant SAP /zigman2/quotes/207905606/composite SAP -1.08% /zigman2/quotes/202053813/delayed XE:SAP -0.51% rose in Frankfurt after lifting its cloud revenue guidance for the year. Bed Bath & Beyond /zigman2/quotes/209801102/composite BBBY -1.04% slumped after the retailer reiterated its sales outlook and increased its stock buyback program.
Television broadcaster Discovery /zigman2/quotes/200511275/composite DISCA +0.07% and Chinese online video platform iQiyi /zigman2/quotes/203657421/composite IQ +0.53% may see pressure after Bloomberg News reported Credit Suisse sold $2.3 billion worth of shares, as the bank continues to unwind positions held by Archegos Capital Management .
There are a number of Federal Reserve officials speaking, including Chair Jerome Powell, at noon Eastern, and Vice Chair Richard Clarida, at 3:45 p.m., with Clarida’s possibly more important given the topic, “The Federal Reserve’s New Framework and Outcome-Based Forward Guidance.”
European Central Bank President Christine Lagarde is speaking at a “fireside chat” event at 10 a.m. Eastern. The Fed’s Beige Book of economic anecdotes also is due for release.