120419 WallstrM

Prepare for US Q2 Earnings Season

Equities 3 minutes to read
Neil Wilson
Neil Wilson

Investor Content Strategist

Note: This is marketing material. This article is not investment advice, capital is at risk.

Prepare for US Q2 Earnings Season

Key Points

  • Wall Street readies for Q2 earnings season with stocks at ATHs and volatility at lowest since March
  • Banks kick of reporting season but the main focus will be on big tech and AI
  • Earnings expectations have been revised down, creating a lower bar to beat

The second quarter was very volatile for stock markets – will this be reflected in the Q2 earnings report cards? Banks kick off earnings season on Wall Street on 15 July, the same as key US inflation data is released, with the market near all-time highs despite trade tensions and fears about declining earnings growth.

Multiples have also looked stretched following the rally, with the S&P 500 trading at 22x forward earnings. Notably, cyclicals are trading higher relative to defensives, with the expectation that growth is about to pick up. But bond and equity markets are not telling the same story - one will have to give - either we have stronger growth and higher yields or lower growth and yields and stocks ought to fall.

Tariff Quarter

This is the first quarter for US companies under President Trump’s tariff regime. While earnings are seen declining from the first three months of the year, a plunge in the US dollar will offset some of the damage. The dollar is down about 10% YTD after enduring its worst first half since 1973. Analysts expect second-quarter EPS growth of 5.8% compared with 13.7% in Q1. For the S&P 500, EPS growth is expected at 5% for the index as a whole, which would be the slowest pace of growth since Q4 2023.

Earnings season also comes as Trump ratchets up some tariff noise, potentially adding to the volatility and uncertainty for certain stocks and sectors. Having extended the timescales for agreeing trade deals again the new deadline of 1 August comes right in the middle of the Q2 reporting season.

Meanwhile, the next Federal Reserve policy meeting is scheduled for 29-30 July, ensuring there will be plenty of macro noise around the big earnings releases. A critical US jobs report follows on 1 August. Before this, US inflation data coincides with the start of earnings season proper when the banks begin reporting on Tuesday, 15 July. This could be a crucial reading ahead of the Fed meeting on whether policymakers are leaning towards the kind of cuts the market is hoping for or whether rising inflation pressures from tariffs are starting to show.

Low Bar to Clear

Earnings estimates have been revised down more than normal, potentially clearing the way for companies to beat Wall Street’s expectations. During the quarter, analysts lowered EPS estimates by a larger margin compared to the three most recent averages, according to FactSet. The Q2 bottom-up EPS estimate decreased by 4.2% to $62.83 from $65.55 between March and the end of June.

Expectations look sufficiently low for companies to deliver healthy beats on revenues and profits, so the question will turn to the outlook and earnings estimates. Again the bar seems quite low.

Analysts have also lowered FY 2025 estimates. It is worth noting that analysts usually lower reduce earnings estimates for the year during the first six months of the year, but the 3.6% revision lower is well ahead of the average 2.8% cut over the last 25 years.

Big Names Key

For the broader market, the big tech names will have to deliver. Increasingly the focus has narrowed down from the Mag7 to the Mag3 – Nvidia, Meta and Microsoft, which have been doing the heavy lifting for the broader market and account for nearly 20% of the market cap of the S&P 500. Of extra importance will be guidance from tech companies, especially Amazon, Meta, Microsoft and Google, on their AI buildout spending, on which a lot of the market expansion is dependent.

Technology shares rallied over 23% in the second quarter and earnings for this sector are seen rising 17%. Communication Services, which also rose in Q2, is seen posting EPS growth of more than 30%.

Where Next for the S&P 500?

Wall Street has turned bullish on US stocks - Goldman Sachs has joined JPMorgan, Barclays, Citigroup and Deutsche in raising year-end forecasts for the S&P 500, suggesting it could rally 11% from last week’s record highs.

Industry analysts in aggregate predict the S&P 500 will rise about 7% over the next 12 months, according to FactSet, with the bottom-up target price for the broad index at 6,694.55.

Key Earnings Dates for Your Diary (correct as of 11 July)

Stocks

Earnings Date

JPMorgan Chase & Co.

15-Jul

Goldman Sachs

16-Jul

Netflix Inc.

17-Jul

Taiwan Semiconductor (TSMC) - ADR

17-Jul

Tesla Inc.

23-Jul

Intel Corp.

24-Jul

Alphabet Inc

29-Jul

Advanced Micro Devices Inc.

29-Jul

Microsoft Corp.

29-Jul

MicroStrategy

29-Jul

UnitedHealth Group Inc.

29-Jul

Meta Platforms Inc.

30-Jul

Robinhood Markets Inc.

30-Jul

Apple Inc.

31-Jul

Palantir Technologies Inc

4-Aug

Hims & Hers Health Inc.

4-Aug

Super Micro Computer Inc.

5-Aug

Uber Technologies Inc.

6-Aug

IonQ Inc.

6-Aug

Amazon.com Inc.

7-Aug

Coinbase Global Inc

7-Aug

CoreWeave Inc.

13-Aug

Rigetti Computing, Inc.

14-Aug

D-Wave Quantum Inc.

14-Aug

Berkshire Hathaway Inc. B

15-Aug

NVIDIA Corp.

27-Aug

Broadcom Inc.

4-Sep

 

Source: nasdaq.com, company websites

 

 

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