What to expect as S&P 500 companies report this week

Get set for another strong U.S. earnings season, continuing this week.

Sixty-one S&P 500–listed firms release earnings over the coming week, including financials such as BlackRock, Goldman Sachs, Morgan Stanley and Capital One. Other companies include Netflix, eBay, Kinder Morgan and Microsoft.

Bank of America today reported second-quarter net income jumped 33% year over year, as, like most other big banks, it benefited greatly from U.S. tax reform, as well as from rising interest rates.

Read: JPMorgan Chase, Citigroup profits rise as Wells Fargo’s earnings fall

Though sectors beyond financials might not fare that impressively, they’re hardly expected to be laggards.

Thomson Reuters is forecasting second-quarter earnings to increase about 21% year over year. That’s down only modestly from 27% in the prior quarter, notes BMO senior economist Robert Kavcic in a weekly equity markets report. (Excluding energy, earnings are expected to increase a still strong 17%.)

“This recent run of growth is the strongest we’ve seen since the economy was jumping out of recession in 2010—one trend that flies in the face of various other measures flashing late-cycle warnings,” says Kavcic in the report. “[…] Technology, consumer discretionary, financials, industrials and healthcare are all expected to post double-digit gains in Q2.”

He adds that a revenue burst has driven much of the recent acceleration, not cost cutting. Further, earnings growth has been realized despite softening price momentum, a situation that has helped valuations. “The forward price-to-earnings multiple on the S&P 500 has compressed by roughly 1.5 [percentage points] since the end of 2017,” he says.

Overall, says Kavcic, “the Q2 season should highlight solid underlying momentum in the corporate sector, with some potential discussion on the impact of trade policy.”

A CIBC weekly economics report says that U.S. producers are so far weathering the tariff storm reasonably well.

For example, prices for industrial supplies have fallen since the imposition of U.S. tariffs on steel and aluminum imports in March—and by more than other goods included in the import price index.

That’s partly due to a stronger U.S dollar, however, and might be only temporary.

While a stronger dollar should help shield producers from higher costs in the near term, the report says, “our forecast for a gradual fading of USD strength in the coming year could limit that effect in the future.”

For more details, read the full reports from BMO and CIBC.

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