For more than half a century publicly-traded US corporations have reported earnings at quarterly intervals, but during an early-morning wave of social media posts on Monday, President Donald Trump reignited a long-standing debate over the requirement.
Trump is pushing for a six-month reporting schedule as opposed to the current every three-months format. Ending quarterly results in favor of a six-month reporting schedule would “save money, and allow managers to focus on properly running their companies,” Trump said.
It’s not the first time Trump has weighed in on the frequency of earnings. Back in 2018, the Republican tweeted in favor of the six-month system, citing discussions with “some of the world’s top business leaders” and noting that it would allow for greater flexibility and save money.
TD Cowen analyst Jaret Seiberg is assigning 60% odds that the Securities and Exchange Commission takes action to implement the six-month reporting schedule. Others on Wall Street were more skeptical a change would happen while some pointed to risks like less accountability and more volatility.
Quarterly earnings were mandated by the SEC in 1970 as part of the government agency’s decades-long push to increase transparency in the aftermath of the 1929 stock market crash.
Here’s what else market observers have to say:
“This appears to be an easy policy win for SEC Chair Paul Atkins to deliver to the President. It also is consistent with his de-regulatory focus. That is why we believe the switch to semiannual from quarterly reporting has moved from improbable to probable though not guaranteed.
“It will take staff at least six months to craft a proposal and collect the economic data needed for the rule change to survive judicial review.”
“Our initial instinct is that Trump is unlikely to make an aggressive follow-on push in the near-term and that Atkins will have space to get a normal SEC process underway. This is in part because Atkins has already acknowledged Presidential authority to direct the SEC, saying last week that ‘it’s clear from the law and Supreme Court rulings that we’re part of the executive branch and the president can fire me and the other commissioners.’ The real test will come if Atkins and the other Commissioners come to believe as a result of the process that a different approach is warranted.”
“Quarterly reporting is unlikely to go away as it is required in the Exchange Act of 1934. I do not see Congress changing that requirement. The most recent act of Congress was to strengthen these reporting requirements with the passage of Sarbanes-Oxley. We also have requirements that public companies disclose material facts that are important for investors to make informed decisions about their investment.
“Where there could be change is in what is required on a quarterly basis, an areas where the SEC has discretion. Regulatory tailoring is a key theme among federal financial regulators, could tailoring lead to more flexibility in what public companies report on a quarterly basis, especially for smaller companies?”
Sameer Samana, head of Global Equities and Real Assets, Wells Fargo Investment Institute:
“At a high level, this would lead to greater uncertainty due to the longer periods between reports. The greater uncertainty would also feed into greater market/price volatility when companies do report. When it comes to investing, more information at higher frequencies always beats less information at lower frequencies.”
“It’s a bad thing for portfolio managers as it removes two points of contact where the company discloses certain facts and most companies offer a dialog on the conference call. Important information comes out of these public Q&A sessions. Missing these would diminish the ability of all investors to better understand the company’s prospects.”
“To that I say amen! And the Fed should be ‘steadily proactive’ instead of aggressively reactive — both combined could lead to a far less volatile stock market and less myopia. Unlikely to happen, but we can dream! That said, volatility is good for some traders/investors and business.”
“While the goal would be to get investors and companies to become more long-term focused, it would increase uncertainty in the equity market and could lead to a lowering of valuations (i.e., higher risk premiums) given the lower frequency of new information. Earnings season moves could also be larger as misses get bigger and more consequential. The S&P 500 could begin to look more like the Russell 2000 in terms of volatility/valuation/earnings uncertainty. However, it might be good for active management, or at least the potential for PMs to pick stocks.”
“The lack of transparency will make it harder for investors, but it will also free up company managements to focus on their businesses on a longer-term basis. So, it’s definitely a double-edged sword. It’s going to put a premium on accurate analysis from Wall Street. It would also be negative for options traders as they make a lot of money when companies report earnings.”
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