Traders are bracing for one of the most volatile earnings periods in stock market history.

At least that’s what they are positioning for two days before big banks kick off the reporting cycle in the U.S. Options traders expect individual stocks in the S&P 500 Index to move 4.7% on average in either direction after reporting their results, the largest earnings-day moves on record, according to strategists at Bank of America Corp.

With uncertainty about inflation and the prospect of further interest-rate cuts fraying investors’ nerves, traders are turning to earnings season for reassurance that, at least for Corporate America, all is well. Regardless of the actual results, rising volatility is good news for active managers that discern losers from winners, the bank’s strategists say.

“We believe this earnings season will once again be stock pickers’ paradise,” Savita Subramanian, head of U.S. equity and quantitative strategy, wrote Monday in a note to clients.

U.S. stocks have endured a bleak start to to 2025 after two consecutive years of returns eclipsing 20%, the best stretch for American equities since the 1990s dot-com boom. Since hitting an all-time high of 6,090 Dec. 6, the S&P 500 has floundered as interest rates climbed over concern inflation will keep policy tighter for longer.

The upcoming earnings season, set to kick off Wednesday with JPMorgan Chase & Co., will be a key test for the equity rally after its torrid two-year run. Analysts estimate S&P 500 earnings to grow 7.5% in the fourth quarter, according to Bloomberg Intelligence data — the second-highest pre-season forecast in the past three years, setting a high bar for companies to deliver.

After taking a backseat in 2022 and 2023 amid rising macroeconomic uncertainty, earning became a key catalyst for US equities last year, driving 68% of 12-month returns for the S&P 500, per BofA data. Companies that beat on both sales and earnings per share last quarter outperformed the broader S&P 500 by the most since mid-2019.

“For short-term investors, stock differentiation is heightened during earnings season, particularly on the busiest reporting days,” Subramanian said.

The busiest days this quarter fall on the week of January 27-31.

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