Earnings, Profits, Earnings - July 10, 2019

Q2 earnings season is gradually getting underway.

  • Early reports are impressive relative to expectations (Refinitiv).

Analysts project Q2 S&P 500 profits will decline 0.1% from a year ago. Revenue is projected to rise 3.4% (Refinitiv a/o July 9; forecasts subject to change).

Key drivers—

  • Revenue growth is forecast to outpace profit growth for the second-straight quarter. That means margins are coming under pressure.
  • Look for commentary on the flare-up in trade tensions.
  • A strong dollar is set to chip away at sales of multinationals, as overseas sales must be translated back into a stronger dollar.

Investor’s corner

Historically, analysts are too pessimistic. As earnings pour in, most firms typically top expectations.

Shorter term, the prospect of rate cuts played a big role in June’s rally and new highs on major indices.

Longer term, profit growth is the biggest driver of stock prices, as economic growth lends support to profits.

The good news – odds of a profit-killing recession this year remain low.

For long-term investors, a well-crafted financial plan takes long-term economic cycles into account.