Are U.S. companies penalized because they’re forced to report results each quarter? Investors basking in a nine-year bull run that is currently three times the size of the rest of the world’s aren’t so sure.
Flexibility and lower costs were the reasons given by President Donald Trump in ordering regulators to consider spacing out earnings reports to six months. In a market where $23 trillion of value has been created since 2009, some money managers wondered it if was a solution without a problem.
“The new reporting standard could potentially do the opposite of what it is supposed to,” said Bruce McCain, chief investment strategist at Key Private Bank in Cleveland. “You might increase volatility in the market but not do a whole lot to lengthen the planning period or the evaluation period.”
Stock performance isn’t everything — plenty of people argue that an obsession with quarterly performance blinds executives to the long-term consequences of their acts. And nobody is saying earnings regulations are the key to the market’s success. But many money managers shared a sense that the quarterly regime exemplifies candor that is absent in the rest of the world, a quality that contributes to the U.S. market’s resilience.
“Investors continue to look for increased transparency from the market and this could be a step in the opposite direction,” Michael Gabelli, managing director at Gabelli & Partners, which manages about $1.5 billion. “I would need to see official language of what the exact change would be before taking a position.”
To be sure, meeting a quarterly schedule takes a toll on firms and analysts. The rules that make companies answerable every three months are the same ones that inform a quarterly farce in which executives guide estimates just low enough to be beaten. Anything that examines that ritual has supporters.
“A lot of analysts and portfolio managers feel like they’re always on the treadmill and they’re jumping from one earnings season to the next,” said Chris Harvey, head of U.S. equity strategy at Wells Fargo. “There’s a lot of busy work just to get those numbers out and sometimes there’s not a whole lot of additional information.”
Still, many investors were unclear on what the rule change would achieve. For every chief executive railing against short-term focus, there’s a money manager extolling the virtues of transparency. Companies may spend millions of dollars complying with reporting rules, but it hasn’t kept them from expanding earnings by more than 20 percent this year.
“The more transparency you have, the happier your shareholders are, and the happier you are as a company executive,” said Jonathan Golub, chief U.S. equity strategist at Credit Suisse. “If you’re not doing a good job as a company executive and you’re thinking that reporting earnings every six months will make your life easier, you’re wrong.”