The second-quarter earnings season will kick off in earnest next week, and investors should brace for bad news with all signs signaling a second straight decline that will confirm an earnings recession.
“The only good news is that expectations are low,” Dudack wrote in a note to clients. “Nevertheless, it is clear that to support a sustainable advance in the [S&P 500 index] earnings need to improve and beat the current consensus.”Of the S&P 500’s 11 key sectors, five are expected to suffer year-over-year EPS declines, led by materials and information technology, as a slowdown in the global economy and trade disputes have acted as a drag on consumer and business spending.
The following are the five things that MarketWatch expects to be the most important factors to watch for during earnings season: TS Lombard highlighted a whole other set of risks in the different approaches taken by U.S. and China negotiators that the U.S. may not be fully taking on board. The U.S. approaches talks with the view that it is defending a negotiating position, “but for China much of what the U.S. is trying to achieve appears to be a threat to the system that is fundamental to the power and control of the Communist Party,” TS Lombard analysts wrote in a recent note.
Meanwhile, the aggressive rhetoric from the White House, the tit-for-tat retaliatory tariffs that trading partners are placing on each other and frequent changes of mind are showing up in data, in company releases and on calls. Read now: Bond legend Dan Fuss says tariff hikes will put leveraged debt markets through the ‘wringer’
Last week, a warning from South Korea-based electronics behemoth Samsung Electronics Co. 005930, +0.22% that second-quarter profit could be less than half what it was last year rattled the entire chip sector. Samsung said it expects second-quarter operating profit to decline 56% from a year ago to 6.5 trillion won , citing sluggish demand for memory chips, made worse by the continuing U.S.-China trade war.
PepsiCo Inc. PEP, -0.80% another early reporter, said dollar strength reduced second-quarter net revenue by 3 percentage points and lowered earnings per share by 2 percentage points. For 2019, the company said current consensus dollar expectations implies a “foreign exchange translation headwind”—another way of saying the negative effects of dollar strength—of 2 percentage points for both revenue and EPS. Read more about PepsiCo’s results.
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