Earnings Season Kicks Off

Earnings season kicks off in earnest this week, with major consumer and financial companies reporting results, and will be closely watched by investors. Overall, S&P 500 sales and earnings per share are likely to have hit record highs for the quarter, but growth on both lines is expected to have slowed and profit margins to have narrowed.

Second quarter earnings for the S&P 500 are expected to grow by 5.7%, according to IBES data. Third and fourth quarter estimates have been moving down slightly, but are still projected at 10.9% and 10.5%, respectively.

Analyst estimates for S&P 500 revenue are 10.4% higher than last year’s second quarter. Excluding energy, which has been booming on the back of high oil and gas prices, sales are expected to have declined 2.4%, and earnings to have increased by 6.7%.

Beverage giant PepsiCo will report on Tuesday, and is expected to report a rise in second-quarter revenue on higher prices for its sodas and snacks. Investors could get insights as to whether PepsiCo can continue to pass on price hikes to retailers and grocery stores, and whether the price hikes will lead to slowing consumer demand.

JPMorgan Chase and Morgan Stanley kick off bank earnings on Thursday. Wells Fargo, Citigroup, and PNC will follow on Friday. Analysts and investors will be watching to see how banks’ mortgage businesses are faring as Federal Reserve rate hikes weigh on mortgage lending and refinancing.

"While analysts have lowered their near-term earnings estimates in recent months, those projections may still be too rosy. Expectations for the second quarter have fallen by a smaller margin than the historic average, while forecasts for the year have actually increased. If companies fail to deliver on these lowered estimates and guide lower for the current quarter, investors are likely to lose more conviction," said Caleb Silver, Editor-in-Chief of Investopedia.