Since 1970, U.S. law has required quarterly earnings reports from all publicly traded companies. Now, for the second time in the last decade, that's under debate with potential implications for investors, companies, and the overall market.
The Securities and Exchange Commission (SEC) said it will prioritize President Trump's proposal to make earnings season a twice-yearly event instead of quarterly, though his proposal for this in 2018 went nowhere.
"The SEC solicited public comment on the idea in 2018 but never went further than that," said Michael Townsend, managing director, legislative and regulatory affairs at Schwab. "This will be a fascinating debate for investors and the markets, pitting those who think less frequent reporting will save money and help companies focus on the longer term against those who think it will cause less transparency and more volatility."
The discussion raises a host of issues, including if Congress would have to change the Exchange Act of 1934, how investors would feel about potentially getting less information from companies, and whether such a change would exacerbate market volatility, Townsend added in his recent analysis.
For most investors, quarterly "earnings season" is simply part of the scenery, providing regular insights into company results, strategy, and often projections. If that changed to twice a year, as Trump proposed, would it help or hinder investors and companies, and how would it affect trading on Wall Street, if at all?
Those who suggest cutting back earnings reports to just biannually cite several potential positives:
- Companies would have less paperwork and fewer time commitments required to gather, check, and release quarterly reports. The change would ostensibly free up teams to do more to grow the business. The current quarterly requirement is especially hard on smaller public companies, requiring heavy investment that might be better spent elsewhere.
- Companies might save money by cutting back on resources used to report quarterly, perhaps helping margins.
- Executives would be motivated to think of long-term strategies to grow the company rather than short-term wins that might satisfy investors, but this route may not be the best over time. Free of the commitments associated with quarterly reporting, they would also have more time to focus on the bigger picture.
Possible cons of changing to biannual earnings include:
- A loss of transparency for investors, who would possibly turn to other, potentially less reliable information sources for insights into company health rather than the earnings information filed by the companies themselves, which corporate executives are required to sign off on before submitting to the government.
- Companies freed from the burden of quarterly reporting might engage in riskier behavior that harms their business (and investors). Without quarterly evaluations, these moves might not be flagged in time or debated in the market.
- Less ability for Wall Street analysts to assess company health, making it harder for investors to learn where to invest or why they might want to avoid certain stocks.
- Fewer chances for investors and analysts to hear directly from executives, most of whom take analysts' questions on quarterly earnings calls. Though companies also have "analyst days" and join industry meetings, quarterly earnings calls allow analysts to ask questions in a less structured way, requiring executives to face issues publicly that they might be able to avoid in a less transparent environment.
- Concern that with less financial information, the markets won't reflect actual company values as well as they do now, reducing investors' ability to make informed decisions. Over time, this could reduce the efficiency of public markets, making them less relevant even as many companies are already choosing to stay private. One advantage of public markets over private is the ability of investors to get accurate information.
As an investor, you may fall on either side of this debate. When the first Trump administration proposed two earnings reports per year, it generated nearly 100 letters to the SEC, arguing a variety of perspectives. The issue fell off the table when Joe Biden won the 2020 election and the SEC stopped the debate. Now it's back. And it's unclear how aggressively Trump will pursue this. However, with the SEC prioritizing the topic, it can't be dismissed.
The twice-annual approach has been tried elsewhere. The European Commission removed quarterly reporting requirements in 2013, though European companies traded on U.S. exchanges must still report four times per year.
Possible impact on markets: Wider price swings, more surprises
How would a semiannual reporting requirement affect the stock market? It could cause more volatility because there would be less certainty with companies sharing less information. This could mean wider swings for individual stocks, possibly in response to alternative forms of information that might not be as reliable as company reports.
But the opposite could also be true. Often, shares of companies crater or skyrocket as they report quarterly earnings or projections that don't align with analysts' and investors' expectations. Recently, Oracle (ORCL) shares jumped more than 30% in one day—its biggest single-day move since 1992—after the company disclosed that it had far more AI-related orders than Wall Street had expected. Nvidia (NVDA) had a similar move back in 2022 when it surprised Wall Street during its earnings report.
On the other hand, if companies only report twice per year, there may be more potential for surprises and perhaps even more dramatic volatility. As investors learn new information that has had more time to percolate through a company's finances, they may rush to get into or out of stocks. This backdrop would arguably mean a less efficient market.
One argument for biannual earnings is that quarterly reporting requirements and the burdens they pose keep many companies from going public in the first place. If reporting becomes twice per year, more companies might have initial public offerings (IPOs), reducing a recent trend in which many public companies have left the public market and many smaller companies have remained private. A bigger public market, advocates say, would give investors more investing opportunities and companies access to more funds.
One school of thought suggests most big companies would continue reporting quarterly even if the law didn't require it because investors would demand it and because companies might feel it is a competitive disadvantage if they report every six months but their competitors report quarterly.
However, a bifurcated reporting requirement might also come into consideration. In that scenario, smaller public companies would only be required to report twice per year, freeing them from some of the cost and regulatory burden, while established companies would still have to report quarterly.
Impact on investors: Interest might sag, along with trading volume
Another point of concern is that going to biannual reporting would reduce volume by dampening investor interest in the markets, especially among swing and option traders. Long-term investors also might find it a tough adjustment.
"There is a cadence, or pulse, to the economy and a reason there are so many economic data releases: it's to keep investors updated so they can make changes to their portfolios if they perceive changes in the risk/reward dynamics that dictated their initial investment decision," said Nathan Peterson, director of derivatives analysis at the Schwab Center for Financial Research.
"Investors, and humans in general, don't like change," Peterson added. "If you've been used to getting a quarterly update and now it's biannual, it may lead to less engagement from investors. Many investors and traders enjoy earnings season. It's like enjoying golf or tennis tournaments throughout the year."
Also, a shift to biannual reporting might alter the "backtesting" that analysts and traders use to make their investment decisions, Peterson noted. This means evaluating a trading strategy's historical data to see how it might've worked if applied in the past.
A change in reporting requirements isn't likely to happen soon, so investors have time to prepare.
"It is likely to take the SEC months to sort through the questions, conduct the required economic analysis, and potentially propose a rule to change the status quo," Schwab's Townsend said. "Put this one in the 'stay tuned' category."
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