Second quarter earnings season has arrived!
Reports start rolling in around July 11 – that’s when the big banks report quarterly results, and they’ll really get going the following week. (You can find a handy calendar of quarterly results announcements for S&P 500 companies here.)
This is always an exciting time for investment analysts because we get a new and detailed view into the health of companies we own as shareholders… as well as the firms we’re considering investing in.
So, what should we expect from second quarter earnings?
Well, Wall Street analysts are quite optimistic. The overall estimated year-over-year earnings growth rate is 8.8% (that’s according to FactSet, which compiles analyst estimates). If that prediction turns out to be accurate, it would be the highest growth rate since the first quarter of 2022.
Some sectors – including communications services, healthcare and information technology – are expected to fare much better than the average. Here’s a breakdown of estimates by sector…
As you can see from the chart, only a couple of sectors are expected to post significant negative growth.
That’s very good news for stocks (at least those found in sectors expected to post strong earnings growth), considering earnings are the best long-term predictor of share prices.
Healthy Companies Hiring
There’s one thing to watch for additional insight into how earnings season might unfold: This week’s employment report from the Bureau of Labor Statistics. The report, which will be released this Friday at 8:30 a.m. ET, will detail which industries added or lost the most jobs during the month. It will also provide data on wage growth.
Why is this important to earnings and, eventually, the stock market?
Because payroll employment is highly correlated with S&P 500 forward earnings. That’s due to the fact that profitable companies tend to expand their payrolls, while unprofitable ones are forced to pare them. So the jobs report can be a good forward-looking indicator for earnings.
I expect an increase in employment for June of around 175,000 jobs – give or take 25,000 – which would mark yet another month of strong employment gains…
I also expect wage data in Friday’s report to show that inflation continues to moderate.
Both of those data points – strong job gains and moderating wage gains – would be very good news for stocks going forward. So make sure you’re invested now, not later.
[Editor’s Note: If you want to know about seven artificial intelligence super stocks that Chief Investment Strategist Alexander Green believes will dominate markets going forward, check out his “next Magnificent Seven” here.]