Every S&P 500 company reveals what is going wrong, in the numbers behind its business (profits, debt, inventory, cash flow) and in the risk warnings inside its own reports. S&P 500 Risk Radar examines both closely, tracks what has changed since last year, and surfaces the signals before the stock price falls.
Start Analysis See real examplesThree real S&P 500 companies where the risk was disclosed months before the stock reacted.
The numbers show where a company has been. The risk warnings hint at where it is going. Most investors watch only one. We read both.
Signals hiding in the balance sheet and income statement, the story the reported figures tell.
What companies are legally required to disclose, and how their tone shifts when trouble is coming.
Choose any company in the S&P 500. We pull its official reports and yearly filings automatically.
We compare this year to last year, both the numbers and the risk warnings, and pinpoint what changed.
Get a plain English breakdown of each risk with a score from 0 to 100. Higher means a louder warning.
Short, plain English case studies on the risks we find hiding inside company reports.
In early 2022, Target looked healthy on the surface. Fiscal 2021 had just closed with about 106 billion dollars in revenue, comparable sales up 12.7 percent, an operating margin of 8.4 percent, and full-year earnings of 14.10 dollars per share. The stock had spent much of the prior year near record highs. If you only watched those numbers, nothing seemed wrong.
In its annual report, Target's risk language grew more specific about inventory, supply chain disruption, and rising costs, describing pressure from higher freight and transportation expense and the risk of carrying the wrong amount or mix of inventory. The calm, repeated boilerplate from earlier years gave way to sharper, more concrete warnings. These were small shifts in wording, the kind that are easy to skim past.
On May 18, 2022, Target reported first quarter results. Sales still grew, comparable sales were up 3.3 percent, but gross margin collapsed to 25.7 percent from about 30 percent a year earlier as freight, markdowns, and excess inventory ate into profit. Earnings per share came in at 2.16 dollars, down 48.2 percent from the prior year. Management cut its full-year operating margin outlook to about 6 percent, down from over 8 percent. The stock fell 24.9 percent in a single session to about 161 dollars, its worst day since 1987, erasing roughly 25 billion dollars in market value.
Revenue never stopped growing. It was profit, the margins, that gave way, and the risk wording had already been pointing at the causes: inventory and costs. Reading both together, the words and the numbers, gave a fuller picture than watching the stock price or the sales line alone.
For years, Southwest's filings flagged its reliance on aging technology and crew scheduling systems as an operational risk. The warning was consistent and public. Because it repeated with little change, it read as routine, the kind of standing caution every airline includes. On the surface the business looked fine, Southwest would go on to report full-year 2022 revenue growth and a full-year profit.
In late December 2022, a severe winter storm overwhelmed those exact systems. The crew scheduling software could not keep up, and the airline canceled more than 16,700 flights over the holidays, on two days scrapping over 60 percent of its schedule and stranding travelers across the country.
Southwest said the meltdown cost it about 800 million dollars, and it posted a 220 million dollar net loss in the fourth quarter of 2022, even though the full year still finished profitable, with net income of about 539 million dollars. The stock fell roughly 15.6 percent in December. A year later the airline agreed to a 140 million dollar penalty tied to the episode.
A risk a company repeats every year is easy to tune out, but repetition does not make it harmless. The full-year numbers stayed positive, yet one disclosed, long-ignored weakness produced an 800 million dollar hit and a losing quarter.
By early 2023, SVB was the 16th largest bank in the United States, with roughly 209 billion dollars in assets. Its filings described a large portfolio of long-dated bonds exposed to rising interest rates, and a deposit base heavily concentrated in technology startups, more than 100 billion dollars of it uninsured. Neither was a secret. On their own, each looked like a normal line item. Together, they were a fragile combination waiting for the wrong conditions.
Through 2022, as interest rates rose, the market value of that bond portfolio fell, eventually by billions of dollars, and the stock drifted down from around 559 dollars to the low 200s. The slow decline did not alarm most investors. Then it moved fast. In early March 2023, the bank sold bonds at a loss of about 1.8 billion dollars and tried to raise roughly 2.25 billion dollars in fresh capital. That signaled distress, and its concentrated depositors rushed to withdraw at once. The stock crashed from about 268 dollars to 106 dollars on March 9, and trading was halted on March 10 as regulators closed the bank, one of the largest bank failures in United States history.
The two ingredients of the failure, interest rate exposure and depositor concentration, were both in the filings long before the collapse. The story moved slowly for a year and then very quickly in a matter of days.
The finding that filing language predicts future problems is not new. In one landmark study, buying companies whose filings barely changed and selling those whose filings changed a lot earned roughly 22 percent per year. The reason it keeps working is that almost nobody reads these documents. See the papers below, including two from the University of Washington.
This project takes its inspiration from finance and accounting professors who have studied, over many years, how the risk language in company filings can foreshadow what comes next. S&P 500 Risk Radar does not claim new research. It is a student's attempt to explore, in real companies, whether the patterns these researchers described actually show up in the real world. The papers below are the foundation for that idea.
The anchor paper for this project. Studying two decades of company filings, the authors showed that changes in filing language, especially in the risk and management sections, predict weaker future returns. A strategy of buying companies whose filings barely changed and selling those whose filings changed a lot earned roughly 22 percent per year. The reason it works is investor inattention. Almost nobody reads these long documents closely.
View the paper ↗Built the finance specific word lists that this project relies on for reading tone. The authors showed that general purpose sentiment dictionaries misread financial writing, because words like liability or tax are neutral in a finance context. Their negative and uncertainty word lists became the standard tool for measuring tone in filings, and Risk Radar uses this approach for the words half of its analysis.
View the paper ↗Examined whether the risk factor section is meaningful or just boilerplate. The authors found that firms facing greater risk disclose more risk factors, and that the type of risk a firm describes, whether financial, legal, or otherwise, lines up with the actual risk it faces. This supports the idea that the risk section carries real information about the company.
View the paper ↗Studied what happens when a firm increases its risk language from one year to the next. The authors found that these annual increases are followed by higher stock return volatility and trading volume around and after the filing, along with more spread out analyst forecasts. In short, when companies say more about risk, the market treats them as riskier.
View the paper ↗Asked whether it matters how specific a risk factor is, rather than just how many there are. The authors found that more specific risk factors, as opposed to vague boilerplate, are more useful to investors and analysts. This matters for Risk Radar, because a generic warning and a concrete, detailed one are not the same signal.
View the paper ↗Looked at what happens when firms update their risk factors during the year. The study found that companies that add or change risk factors tend to have lower future unexpected earnings and are more likely to suffer sharp negative earnings surprises. In other words, updates to the risk section often arrive as an early warning of bad news.
View the paper ↗A note on Washington state. The landmark Lazy Prices research was presented at the University of Washington and Washington State University while it was being developed, and the Foster School of Business at the University of Washington has active researchers in financial reporting and disclosure. This work has deep roots close to home.
I am a high school senior planning a career in finance. I believe finance is the backbone of everyday life and of every organization, whether a young startup or a century old giant. I am drawn to the stories behind the numbers, especially how struggling companies use strategy and finance to reinvent themselves, which I explore in my Substack.
The idea is simple. The warning signs are already public, buried in filings that few people read. S&P 500 Risk Radar is my attempt to surface them early, and to test a question that fascinates me. Can the words predict the fall before the numbers do?
Read my Substack ↗