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.
*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.
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