Quick Bites | US Earnings Season Preview

In the long run it is earnings that drive share price performances, so earnings really matter. We are about to kick off the second quarter earnings season in the US, and we expect that this will set the tone for market performance for the next couple of months.

Overall, companies in the S&P 500 are expected to report a fourth straight quarter of earnings growth, with profits projected to have climbed 8.8% from last year’s second quarter, according to FactSet. That would mark the biggest increase since the first quarter of 2022.  

The Financials sector will be the key focus for the market during the first two weeks of earnings season, as over 40% of the S&P 500 companies that are scheduled to report earnings over this period are within this sector. The Financials sector is predicted to report year-over-year earnings growth for Q2 2024 of 4.3%. Key companies that are expected to report include Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, and Wells Fargo.

Of course, then there are the mega-cap tech giants which have driven the US stock market to new record highs. The S&P 500 has climbed 17% year-to-date, fuelled by investor excitement over artificial intelligence that has skyrocketed shares of Nvidia and other tech giants to new heights. The chip maker’s stock has more than doubled this year, pushing its market value above $3 trillion. Alphabet, Meta and Microsoft have surged as well, all logging double-digit gains.  

As we enter earnings season, mega-cap tech names are under pressure to keep the party going, amidst fears that the market is too concentrated in the so-called Magnificent Seven. The growing size of the index’s heavyweights means a lot is riding on their ability to deliver profits and guidance in coming weeks and given their sky-high valuations, beating analyst earnings expectations will be required.

 

Source: WSJ