The Second Quarter Strikes Back

Analysts expect US earnings recession

Image source: aSuruwataRi, Stefano Buttafoco - Shutterstock

What's going on?

This week, companies will tell investors how they’ve done in the last quarter. Analysts are expecting an “earnings recession” – but results from major US banks and tech companies might change their minds.

What does this mean?

Never fear, Chicken Licken, the economic sky isn’t falling in. An earnings recession is two consecutive quarters in which company profits – not the economy – shrink. US companies’ earnings declined slightly in the first quarter and analysts currently expect a 3% drop in second-quarter profits. Plus, they’ve been lowering their forecasts for the third quarter too…



Second-quarter revenues are actually expected to rise 4%, thanks to stable and predictable demand in “defensive” sectors like utilities and healthcare. But a strong US dollar, rising wages, and increasing raw material costs (partly thanks to tariffs) mean profits should fall nevertheless. And that’s despite share buybacks, which help increase companies’ per-share profit by reducing the number of their shares out there.

Why should I care?

For markets: Bank and tech earnings could move the needle.

The US stock market’s at a record high, and company earnings may be key to whether stocks continue to rise or begin to fall (putting an expected interest rate cut aside). The investment banks reporting this week are at the center of the economy; if they’ve done well, it’s likely their customers – which include the world’s biggest companies – have too. And big tech carries some sway of its own: not-so-micro Microsoft represents 4% of the US stock market and could potentially lift the entire market with a positive update.



For you personally: Company updates affect your investments, wherever they are.

The value of your US stock market investments is directly impacted by company results Stateside. And if you’re invested outside the US, updates from “bellwethers” – good indicators of an industry’s state of affairs – will impact the values of other companies around the world. Global investors will therefore be watching American companies’ earnings closely.

Originally posted as part of the Finimize daily email.

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