Do stocks go down before earnings?

Do stocks go down before earnings?

Early in earnings season many investors ask: do stocks go down before earnings? The short answer is: sometimes. Stocks can and do fall ahead of scheduled earnings reports when investors reduce exposure to event risk, when expectations shift, or when option and institutional flows change. They can also rise into earnings when the market expects a beat. This article explains the common drivers of pre‑earnings declines, what empirical studies and practitioners observe, the market mechanics behind these moves, the post‑earnings reversal patterns, and practical signals and strategies investors can monitor and use.

As of January 22, 2026, according to Benzinga's market overview, the major U.S. large‑cap indices were experiencing choppy action: the Nasdaq closed down 0.66%, the S&P 500 closed down 0.38%, and the Dow Jones Industrial Average closed down 0.29% while the Russell 2000 pushed to a new all‑time high. That mixed backdrop helps explain why many traders remain cautious about holding large directional positions into earnings windows.

This article focuses on U.S. equities and scheduled corporate earnings events (not cryptocurrencies). It is written for investors and traders who want a clear, evidence‑based view of why pre‑earnings declines happen and what to monitor if you plan to trade or hold through earnings.

Overview

Do stocks go down before earnings? There is no single rule: some stocks fall into earnings and then rally on good results, while others drift higher into a report and sell off after the release. The direction and magnitude of pre‑earnings moves depend on three core inputs:

• market expectations (consensus earnings estimates and guidance),
• investor positioning (long/short concentration and option positioning), and
• the broader market context (volatility, macro news, sector momentum).

When many participants want to reduce exposure to a binary outcome, selling pressure can materialize and push a stock down ahead of its report. Conversely, positive sentiment and strong pre‑quarter news can lift a name into earnings.

Investor education outlets and market resources emphasize this variability: broad explanations about risk reduction and event positioning appear across outlets such as Yahoo Finance and Investopedia. Practitioners add nuance: institutional flows, option hedging and guidance expectations are frequent proximate causes of pre‑earnings weakness.

Why stocks may fall before earnings

Risk reduction and position squaring

Large investors and funds often reduce or close positions ahead of earnings to remove the so‑called binary event risk. A single quarter’s surprise or negative guidance can cause outsized intraday moves; to avoid that volatility some institutions trim exposure beforehand. When many sellers act the same way, demand weakens and price drifts lower.

Wall‑street desks have documented the effect of pre‑event selling. For example, coverage of a Goldman Sachs observation highlighted by CNBC finds that sizeable pre‑earnings underperformance can reflect systematic risk reduction and short positioning by options players and institutional desks. That structural selling pressure can create a downward bias into the release.

Rising uncertainty and implied volatility

Uncertainty about upcoming results raises option implied volatility (IV). Elevated IV makes buying naked options more expensive and also changes hedging needs for market makers. Wider option quotes can deter some buyers in the underlying and encourage selling to reduce delta exposure.

Higher implied volatility often accompanies increased bid‑ask spreads in both options and the cash stock, which can further depress demand from liquidity‑sensitive participants. The net effect: heightened uncertainty tends to favor sellers or at least reduce buyer urgency, making declines more likely in some names.

Negative forward guidance expectations

A common driver of pre‑earnings selling is anticipation that management will cut forward guidance or signal near‑term weakness. When the market expects disappointing guidance, some investors exit ahead of the call rather than risk a sharp gap lower.

Coverage on Yahoo Finance and commentary from market research outlets often show that guidance concerns — not only the headline EPS number — drive much of the stock action. Guidance affects future cash‑flow expectations directly, so anticipation of weaker guidance is an important reason investors sell into the event window.

Analyst revisions and whisper numbers

Late analyst estimate cuts, downward revisions to consensus, and the shifting of “whisper” expectations can move a stock lower before the formal report. If several analysts trim estimates in the days leading up to a release, the market can reprice the name even before the company speaks.

Investor groups and services such as AAII and Zacks emphasize that estimate revisions are leading indicators: when they turn negative, share prices often follow. Informal market talk — the “whisper” number — can also reset expectations and cause pre‑event selling.

Tax, rebalancing, and institutional flows

Not all pre‑earnings declines are driven by company‑specific news. Portfolio rebalancing, end‑of‑quarter tax management, hedge fund deleveraging, or large institutional flows can create supply that pressures a stock into earnings. Investopedia notes these calendar and flow‑based sources as frequent contributors to pre‑event moves.

For example, a fund that must reduce sector exposure ahead of a reporting season can sell several names at once, producing correlated declines in that industry even if fundamentals remain unchanged.

Empirical evidence and studies

Patterns observed in studies

Empirical work and practitioner research identify recurring patterns but emphasize heterogeneity. One notable observation reported via CNBC from Goldman Sachs’ options team: stocks that underperform in the two weeks before earnings sometimes experience stronger positive reactions on earnings day if results beat expectations. This suggests that pre‑earnings weakness can compress implied expectations and set the stage for a bigger post‑release rebound on good news.

Academic and sell‑side studies also document that pre‑event returns can predict post‑event volatility: names that trend lower into earnings often have larger than usual moves when the report arrives. That relationship is not deterministic but offers a statistical tendency.

Mixed empirical outcomes

Not all research points in the same direction. Studies collated by AAII, Investopedia and Zacks show that outcomes vary widely with sector, company size, and the nature of the prior move. Small‑cap names, for example, may react differently than large caps because liquidity and short interest differ.

The empirical takeaway: there are repeatable tendencies (e.g., higher IV, pre‑event selling in some names), but results are heterogeneous. Investors should treat aggregated patterns as probability shifts rather than certainties.

Market mechanics that produce pre‑earnings moves

Options market dynamics

Options markets play an outsized role before earnings. When IV rises, option sellers demand higher premiums and market makers hedge their book by trading the underlying. Two common mechanics matter:

• Delta and gamma hedging: market makers who sell options hedge delta exposure dynamically. As the stock moves, gamma hedging can force purchases or sales of the underlying, amplifying moves.
• Volatility skew and positioning: heavy put buying or concentrated short put positions can change how dealers hedge, producing asymmetrical flows that can push the stock down.

Schwab and other broker education pieces explain how gamma and vega exposures around earnings can mechanically influence the cash stock as dealers adjust hedges.

Short selling and negative information leakage

Short sellers and rumor‑driven activity can amplify pre‑earnings declines. If negative leaks or investigative reporting suggest a miss or a softer outlook, short interest can spike and pressure the stock before the company speaks.

Because shorting can be low‑cost relative to the perceived downside in the short run, coordinated short interest can accelerate declines into a report when negative signals accumulate.

Liquidity and volume effects

Liquidity often thins in the run‑up to major corporate events as risk‑averse traders step aside. Thin liquidity magnifies price moves: a moderate sell order in a low‑liquidity environment can force a larger price impact than the same order in a liquid market.

Lower liquidity plus concentrated selling (from funds, block trades, or algorithmic flows) can therefore make declines before earnings more pronounced than rises of comparable size.

Typical directional behaviors and drivers of post‑earnings reversals

A common pattern observed by traders is that stocks which sold off into earnings can rally sharply if results beat expectations. This “buy the dip after event” behavior stems from two forces:

1. Expectations may have already been marked down by the pre‑earnings selling, so a beat produces a larger surprise relative to the priced‑in number.
2. Short covering: shorts who sold into the release need to buy back if results surprise to the upside, producing a sharp reversal.

This dynamic is consistent with the Goldman Sachs observation reported on CNBC. The flip side is “buy the rumor, sell the news”: when a stock has rallied into earnings on high hopes, even a modest beat may be treated as a sellable event as participants take profits and reset for future guidance.

How expectations determine price changes

Role of consensus estimates and guidance

Market prices embed the consensus of analyst estimates and the market’s aggregated expectations. The immediate reaction to an earnings release is largely a function of the surprise relative to that consensus and to forward guidance.

AAII and Investopedia both stress that surprises (actual vs. expected EPS, revenue and guidance) are primary drivers of the intraday move. A miss on EPS or, more importantly, on guidance or margin outlooks, can trigger outsized declines regardless of headline earnings.

High P/E and high‑expectation stocks

Stocks with high price‑to‑earnings ratios or lofty growth expectations are particularly vulnerable to disappointment. When future growth is already fully priced, even slight misses or cautious guidance can cause sharp revaluations.

Yahoo Finance and market commentary note that high‑expectation names in sectors like technology can move more on sentiment and guidance than on the nominal EPS number, especially when macro uncertainty is elevated.

Metrics and signals to monitor before earnings

Below are practical indicators traders and investors use to assess risk ahead of earnings:

• Implied volatility and IV rank: rising IV into a report signals increasing option cost and uncertainty.
• Options skew (put vs. call demand): heavy put demand signals fear and can foreshadow downside.
• Recent analyst estimate revisions: downward revisions in the last 1–2 weeks are a red flag.
• Unusual options and block equity activity: spikes in open interest or volume can indicate positioning changes.
• Short interest: elevated short interest increases the chance of volatile moves and possible short squeezes after a beat.
• Price performance in the prior 1–2 weeks: a sharp run‑up or drop into earnings changes the risk/reward profile.
• Management guidance history: companies that often pre‑announce or that have volatile guidance may produce larger surprises.
• Bid‑ask spreads and intraday liquidity: widening spreads can increase execution risk.

Sources for these metrics include broker research and educational content from Schwab, AAII, Zacks and Investopedia.

Trading strategies and considerations around earnings

Trading around earnings is inherently riskier. Below are commonly used approaches and their tradeoffs. None of these are investment advice; they are descriptions of widely used tactics.

Option strategies

• Buying straddles/strangles: pure volatility plays designed to profit from a large move in either direction. Risk: premium paid can be lost if move is smaller than expected, and IV crush after the event can erode value.
• Buying calls or puts: directional bets that can offer leverage but are subject to IV expansion/contraction.
• Selling premium (iron condors, calendar spreads): selling volatility to collect premium can work if the stock stays range‑bound, but risk of large gap moves is significant.

Schwab and other option educators highlight IV crush: options often fall in value after the event because IV collapses, which hurts long option buyers even if the underlying moves modestly.

Directional equity strategies

• Avoid holding large unhedged directional equity positions into the release unless you have conviction and can absorb a gap move.
• Use protective puts to cap downside if you plan to hold through earnings.
• Consider buying after the event: some traders prefer to wait for the post‑earnings move and trade the reaction (buying dips on beat, fading rallies on disappointing guidance).

Goldman Sachs’ insight about stocks that sold off into earnings later rebounding suggests a disciplined approach: define entry rules and avoid overexposure to event risk.

Risk management and trade sizing

Position sizing and defined risk are critical. Investopedia emphasizes limiting the size of event‑exposed positions so a single quarterly surprise cannot disproportionately harm the portfolio. Use stop‑loss rules, hedges and mental readiness for volatility.

Common pitfalls and behavioral biases

Investors and traders often fall into predictable errors around earnings:

• Buy the rumor, sell the news: expecting a continued rally after a beat without considering profit‑taking and guidance risk.
• Recency bias: overweighting the most recent quarter’s result as a signal for the long term.
• Overreacting to short‑term noise: treating one quarter’s surprise as a permanent change to the business.
• Anchoring on headline EPS without parsing guidance, revenue trends and margins.

MarketRealist and Investopedia provide primers on these biases and how they affect decision‑making during earnings season.

Case studies and examples

Below are concise, illustrative cases showing how pre‑earnings moves occur in practice. These are high‑level examples meant to illustrate mechanics rather than to serve as a complete historical record.

• Example A — Sold into guidance risk: a large retailer drifted lower in the two weeks before its quarterly report after suppliers and a few secondary indicators suggested slowing demand. Investors trimmed positions ahead of the call. When the company cut its forward guidance on the call, the stock gap‑ed down further. The pre‑earnings selling reflected anticipation of the guidance cut.

• Example B — Underperformance then rebound: a technology stock sold off modestly into earnings as option dealers and some funds hedged exposure. The company posted a modest beat and raised guidance; the name rallied sharply intraday as short covering and relieved buyers lifted the price — a pattern consistent with the “sold into earnings, rallied on beat” tendency observed in studies.

• Example C — Beat but sell the news: a high‑expectation growth name rallied into its report on strong sentiment. Even after a solid beat, management gave cautious guidance; the stock sold off as traders took profits and downgraded the narrative. This demonstrates that rallies into earnings can be vulnerable to follow‑through selling when the forward story does not improve.

These vignettes reflect common outcomes reported in financial press coverage of earnings events (examples similar to past episodes involving major consumer and healthcare names) and illustrate how guidance and positioning matter.

Academic and practitioner research references

This article synthesizes findings and commentary from a mix of practitioner reports and educational resources. Key references and sources consulted include:

• Goldman Sachs options desk coverage and CNBC reporting summarizing their observations on pre‑earnings underperformance and reactions.
• Yahoo Finance analyses on guidance, expectations and pre‑earnings behavior.
• AAII (American Association of Individual Investors) materials on expectations and earnings surprises.
• Investopedia explainers on earnings announcements and reasons stocks fall before reports.
• Zacks research primers on analyst revisions and the role of consensus estimates.
• Schwab educational pieces on options hedging, IV behavior and gamma effects around earnings.
• MarketRealist articles on “buy the rumor, sell the news” dynamics and behavioral traps.

All of the above emphasize that while recurring patterns exist, results are context dependent and vary across sectors and firm characteristics.

Practical guidance for investors

If you’re wondering do stocks go down before earnings and whether to trade or hold, consider these practical steps:

• Define your time horizon: are you a short‑term trader or a long‑term investor? Long‑term holders may choose to ignore short‑term swings, while traders need explicit rules for pre‑earnings exposure.
• Monitor IV and consensus: rising IV and downward estimate revisions raise the risk of pre‑earnings decline.
• Use hedges: consider protective puts or collars if you must hold through a risky event.
• Avoid oversized event risk: limit the share of your portfolio exposed to any single upcoming report.
• Consider trading after the release: many traders prefer to trade the reaction when uncertainty resolves and liquidity returns.
• Track short interest and unusual options activity: both can signal heightened move potential.

This guidance is informational and not investment advice. It is grounded in commonly accepted risk‑management practices taught by broker education teams and investor research outlets.

Limitations and further research

The patterns described here are general and probabilistic. Outcomes vary by firm, sector, size, and market regime. For firm‑level decisions consider:

• Backtesting historical price and IV reactions for the specific ticker around prior earnings.
• Reviewing academic literature for sector‑specific earnings‑effect studies.
• Monitoring macro conditions that can amplify or mute corporate news impact.

For systematic or quantitative strategies, consult primary datasets (historical intraday prices, options data, analyst estimate revisions) and consider robust risk controls.

See also

• Earnings season
• Earnings surprise
• Implied volatility
• Options hedging
• Analyst estimates
• Buy the rumor, sell the news

References

Sources referenced in this article include major practitioner and educational materials: Goldman Sachs (as cited in CNBC coverage), CNBC reporting on options desk observations, Yahoo Finance analyses, AAII research and commentary, Investopedia explainers on earnings events, Zacks research on analyst estimates, Schwab educational material on options and IV, and MarketRealist coverage on behavioral tendencies. Market context data cited is from Benzinga/Benzinga market overview as of January 22, 2026.

Practical next steps and Bitget resources

If you trade or monitor markets actively, keep a watchlist of upcoming earnings and track the signals described above. For traders who use options or want a consolidated trading platform, consider evaluating Bitget for execution and Bitget Wallet for custody when working across asset types. Explore Bitget’s learning resources for additional guides on options mechanics and risk management.

Further exploration: analyze historical IV, short interest and estimate revisions for target names to build a data‑driven view of whether a stock tends to fall before earnings.

Thank you for reading. For more on trading mechanics, implied volatility and earnings season behavior, explore Bitget’s educational material and tools to monitor upcoming corporate events.