Are You Ready for Q-2 Earnings?


The S&P 500 has seen the best June performance since Y 1955, and now into the 2nd week of July investors are anxious to see whether earnings can justify further gains as the largest US companies open their books in the coming weeks, as Q-2 earnings season is on us.

The profit picture for Y 2019 has been weakening since the start of the year as the US-China trade dispute has dragged, increasing worries about its potential impact on corporate profit margins. But I believe that data is already priced in to this market.

Some analysts expect almost no profit growth for Q-2 in comparison with a year ago, Vs a forecast of 6.5% growth at the start of the year. In addition, they expect a gain of just 0.7% in Q-3, according to IBES data from Refinitiv.

The S&P 500 hit a record high last Monday after last week closing out June with a 6.9% monthly increase, its biggest June percentage gainer since Y 1955 as stocks climbed a wall of worry.

The potential for a Fed interest rate cut this year may have been June’s driver for those gainers, while recent developments on the sidelines of the G-20 Summit in Japan offered hope for investors that trade tensions may be easing.

With valuations rising, market watchers are paying close attention to the earnings forecast trend, we see stocks moving higher in here, and these valuations are not reasons to sell stocks.

The S&P 500 is now trading at about 17X forward earnings, up from 16.3 at the start of the month, based on Refinitiv’s data.

“We do have the Fed as a powerful force,” said the chief global market strategist at Invesco in a note. “But a lot depends on external factors. We’re already seeing downward revisions to Q-3, that is surprising. “We know that economic policy uncertainty is created by the trade situation.”

Companies are facing tough earnings comparisons with last year, when tax cuts fueled a 24.9% profit gains in Q-2.

Just as with Q-1, both Q’s 2 and 3 could end up stronger than forecast, since the majority of companies typically beat analysts’ expectations during a reporting frame.

S&P 500 companies may see earnings for Y 2019 rising just 2.3% but a rate cut will soothe that concern.

That would represent the lowest annual profit growth for S&P 500 companies since Y 2016.

HeffX-LTN’s overall technical outlook for the S&P 500 (SPY) is Bullish to Very Bullish, and all of our Key indicators are flashing Green, with extremely light resistance at 303.56 (nothing higher) and strong support at 294.09 and below.

Stay tuned…

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