Earnings Season Gets Rolling

Earnings season is here again, as we’ll get reports from 57 S&P 500 Index companies over the next five days.

A quick look at the numbers, as shown in the LPL Chart of the Day, Earnings Lull Expected to be Temporary, reveals that this round of earnings is expected to be uninspiring. Consensus estimates are calling for a 3% year-over-year decline in S&P 500 earnings amid the downshift in U.S. and international economic growth, tariffs, and ongoing trade tensions (source: FactSet).

“We think earnings stand a good chance of beating estimates by the typical 3–4% when factoring in the low bar and generally steady U.S. economy, despite trade uncertainty and tariffs,” said LPL Chief Investment Strategist John Lynch. “That may result in slightly positive growth for S&P 500 companies overall, similar to what companies delivered last quarter.”

Investors will be watching for how much tariff costs are reflected in analysts’ earnings estimates. We suspect China tariffs are mostly reflected in estimates, but it is difficult to know at this point. Estimates were reduced significantly earlier in the year, companies have already taken steps to mitigate tariff impacts, and analysts have had quite a bit of time to react to these developments. We will be watching managements’ commentary on trade and estimate revisions closely as reports come in.

Technology company earnings will be especially impactful this season due to low expectations and the sector’s large weight in the S&P 500 Index. Technology companies are expected to report a double-digit earnings decline, and if realized, their earnings could be a significant drag on overall index profits.

Oil prices are likely cut into energy companies’ profits. The average oil price during the second quarter was 11% below the average price in the year-ago quarter. Based on consensus estimates, the two natural resource sectors (energy and materials) are expected to clip nearly one full percentage point from the overall S&P 500 earnings growth rate for the quarter.

We think the current macroeconomic environment has mid-single-digit earnings growth power. But until we get more clarity on trade, earnings are unlikely to grow much. We think we will get some of that clarity over the next few months, which supports our belief that consensus estimates for S&P 500 Earnings Per Share may be too low.

See our latest Weekly Market Commentary due out later today for more on the upcoming earnings season.

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This Research material was prepared by LPL Financial, LLC.

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