The earnings bar is high and Wall Street thinks it gets cleared anyway

The earnings bar is high and Wall Street thinks it gets cleared anyway — a look at the week ahead

S&P 500 Q2 EPS

$81.21

Forecasted record high for S&P 500 earnings per share in Q2.

Energy Earnings Growth

122%

Expected year-over-year increase in energy sector earnings.

US Economic Surprise Index

Highest in 2 years

Current level of the US economic surprise index indicating positive economic surprises.

§ 01 Executive Snapshot

What: Earnings season is set to begin with high expectations for the S&P 500 amidst rising oil prices and AI-driven growth.
Who: Key players include Scotiabank, Citigroup, Goldman Sachs, JPMorgan, Bank of America, Wells Fargo, ASML, TSMC, United Airlines, and various regional banks.
Why it matters: The performance of major firms during this earnings season could indicate the resilience of the economy amidst supply chain challenges and high energy costs.

Scotiabank forecasts S&P 500 Q2 EPS at $81.21, a record high, representing a +23% year-over-year increase.
Energy earnings are expected to rise by 122% year-over-year, with Technology and Materials also showing significant gains of +61% and +35%, respectively.
The US economic surprise index is at its highest level in about two years, with 84% of early reporters beating estimates.

Historical earnings growth has typically led to strong equity returns, setting the stage for potential market optimism this quarter.
The current environment is marked by high energy prices and geopolitical tensions, which could challenge earnings but have also led to upward revisions in estimates.

If major banks report strong earnings, it could validate the positive outlook and encourage further investment in equities.
Long-term growth forecasts for the S&P 500 suggest EPS could reach $340 in 2026 (+25%) and $396 in 2027 (+17%), indicating strong market confidence.

High energy costs and supply chain disruptions due to geopolitical issues may negatively impact margins and overall earnings.
Competition among regional banks for deposits might affect net interest income as interest rates fluctuate.

Key earnings reports from major banks on July 14 will be crucial for assessing market sentiment and economic health.
Guidance from ASML and TSMC regarding AI capex will be pivotal in determining the future trajectory of technology sector earnings.

§ 07

What are the expectations for the S&P 500 earnings this season?

Expectations are high, with Scotiabank forecasting a record Q2 EPS of $81.21, representing a 23% year-over-year increase.

Why is the earnings season important for the economy?

The performance of major firms could indicate the resilience of the economy amidst supply chain challenges and high energy costs.

How might high energy prices affect earnings?

High energy costs and supply chain disruptions may negatively impact margins and overall earnings.

When will key earnings reports be released?

Key earnings reports from major banks are scheduled for July 14, which will be crucial for assessing market sentiment.