Energy, Financials, and Technology Lead Robust Second Quarter Earnings

Another quarter of stellar earnings growth is likely on tap. Consensus estimates are calling for a 21% year-over-year increase in S&P 500 Index earnings, setting up a second straight quarter of 20% or higher growth and marking the eighth straight quarterly increase.

As shown in LPL’s Chart of the Day, energy, materials, and technology companies (in that order) are expected to deliver the fastest earnings growth during the second quarter. On a contribution basis, technology, energy, and financials (in that order) are expected to be the biggest drivers of the strong year-over-year increase in profits. In fact, more than 60% of the earnings growth is expected to come from those three sectors, based on consensus estimates.

“Second quarter earnings growth has been encouraging so far,” according to John Lynch, LPL’s Chief Investment Strategist. “We are still on track for another quarter of strong earnings growth, thanks to fiscal stimulus and a favorable economic backdrop.”

Energy is expected to produce the strongest growth again, bolstered by the sharp rise in oil prices over the past year. Technology and financials are also expected to post strong earnings gains, both driven by lower taxes and strong revenue growth. Drilling down, internet software & services and semiconductors are expected to see the biggest profit increases within technology, while financial sector earnings are benefiting from a better trading environment, higher interest rates, and deregulation.

Industrials will be a key sector to watch this quarter given its relatively high exposure to tariffs and trade tensions. Earnings estimates for the sector were revised slightly lower during the second quarter but growth is still expected to approach 20% after all results are in. The story for materials is the same, where more than 30% earnings growth is expected, but tariffs may bite.

As always, we will be closely following guidance and forward estimates to gauge earnings momentum. Although it’s too soon to see widespread tariff impacts, we will be monitoring management commentary on potential hits to profitability from tariffs and other trade policies.

IMPORTANT DISCLOSURES

*Please note: The modern design of the S&P 500 stock index was first launched in 1957. Performance back to 1950 incorporates the performance of predecessor index, the S&P 90.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. The economic forecasts set forth in this material may not develop as predicted.

All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. All performance referenced is historical and is no guarantee of future results.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

This research material has been prepared by LPL Financial LLC.

Because of their narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies.

To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC is not an affiliate of and makes no representation with respect to such entity.

The investment products sold through LPL Financial are not insured deposits and are not FDIC/NCUA insured. These products are not Bank/Credit Union obligations and are not endorsed, recommended or guaranteed by any Bank/Credit Union or any government agency. The value of the investment may fluctuate, the return on the investment is not guaranteed, and loss of principal is possible.

Member FINRA/SIPC

For Public Use— Tracking # 1-752883 (Exp. 07/19)