Wall Street expects blockbuster earnings
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Wall Street expects second-quarter earnings will be massive, although some wonder if the hurdle has been set too high.
Why it matters: Earnings season is a psychological process, and the reaction of the markets to seemingly objective things like profits, sales and earnings-per-share data can hinge on how high the expectations for them have been set.
By the numbers: FactSet data shows that Wall Street analysts predict earnings-per-share growth of 22.5% when all the Q2 results for the S&P 500 companies are done and dusted.
- Bloomberg's target for Q2 growth is an even higher 25% year over year, driven by the AI boom and solid economic growth, according to the Financial Times.
Stunning stat: That's the highest growth rate analysts have forecast for blue chip corporate earnings since 2021, when we were lapping the abysmal numbers from the previous COVID-plagued year.
The fine print: The surge in energy prices tied to the Iran war is a big part of the rise in expectations for the quarter that ended in June, with the S&P 500 energy sector forecast to have an earnings increase of 121%.
- The S&P information technology sector — home to giants Nvidia and Apple, as well as the market-leading chip stocks like Micron Technology — is also expected to see earnings growth of 62% year over year.
- At the other end of the spectrum is health care, with per share earnings forecast to shrink by 9%.
What they're saying: "AI-related equity markets may be approaching a point where earnings expectations and capital expenditure assumptions become difficult to sustain" and a correction in these could "trigger a broad equity market pullback," Capital Economics analysts wrote last week, per the FT.
What's next: The unofficial start of earnings festivities is a week from Tuesday, on July 14, when JPMorgan Chase reports.
