This coming earnings season could decide if a stock market at record highs has more room to run
The upcoming earnings season will show investors whether the bull case for equities still holds. The second quarter reporting season comes at a pivotal point for the stock market, with the S & P 500 and Nasdaq Composite trading at all-time highs this week even after an onslaught of bad news regarding higher tariffs, a ballooning fiscal deficit, softening growth and elevated geopolitical risk. But investors are hanging their hopes on an earnings season that may build a floor under the thesis that if the AI story remains intact, and earnings come in better than expected, then the megacaps will continue to soar and the broad market index will be insulated from any looming hazards. “We think corporate earnings are going to be stronger than what the market is actually looking for, and that can actually boost stock prices,” Mary Ann Bartels, chief investment strategist at Sanctuary Wealth Management, told CNBC’s ” Power Lunch ” this week. “We’re well aware that the valuations are high, but if our analysis on earnings is correct, maybe the market is not as expensive as people anticipate.” Bartels, a former head strategist at Bank of America, has issued the most bullish S & P 500 forecast on the Street, saying the broad market index will reach 7,000 by yearend as AI, robotics, blockchain and Web 3.0 drive earnings at major tech companies. “This is the greatest technology innovation of our lifetime,” Bartels said of artificial intelligence. “It’s like the internet on steroids, and we think this is going to drive corporate profits.” Readthroughs for the second half Bullish traders are confident in the outlook for stocks for other reasons too. Companies have a low bar to clear in the coming weeks, given that the tariff uncertainty back in April spurred many analysts to lower their profit expectations. In the second quarter, the S & P 500 is projected to post earnings growth of 4.6% on a year-over-year basis, which would be the weakest going back to the fourth quarter of 2023, according to FactSet data. But even more important will be the insights that companies give as to how their business is looking going in to the back half of 2025. Investors are also trying to figure out which companies can best weather the tariff fallout, and whether inflation was held back in the first half by companies that ordered surplus supplies of imported in the first quarter to avoid higher tariffs. Also key for investors will be capital expenditure investment, especially in tech. If companies are spending on future growth, that would boost investor confidence in the broader market. What’s of major interest, however, is the ramping up of AI spending from the hyperscalers, which will determine whether technology stocks still have to room to expand after their first-half runup. As evidence, Nvidia became the first public company in the U.S. to ever top $4 trillion in market capitalization . NVDA 5D mountain Nvidia over the past five days Also important to in coming weeks will be what companies say about their hiring intentions in relation to to investing in technology to boost productivity, which will give investors readthroughs into the strength of the labor market later this year. Josh Rubin, client portfolio manager at Thornburg Investment Management, said investors will need answers to these questions to pick their positions for a second half where the only certainty is continued uncertainty. “We’re kind of fine,” Rubin said. “And so we seem to be in a stable place for waiting, where we can have a choppy market, but it’s not the kind of market where you need to have [fear of missing out] of the market running away from you, or that you need to be overly defensive with your U.S. positioning.” He’s not alone in expecting a middling U.S. equity market. This week, Bank of America strategist Savita Subramanian raised her S & P 500 year-end target to 6,300 from 5,600, a hike that nevertheless is only a little higher than where the broad market index was last trading. What is clear, Rubin said, is that stock pickers can shine in what’s likely to be a choppy market. He has a preference for international stocks, preferably Europe, over the U.S. The second quarter reporting season kicks off next week with the big banks Citigroup , JPMorgan Chase and Wells Fargo on Tuesday, and Bank of America , Morgan Stanley and Goldman Sachs reporting on Wednesday. In late trading Friday, the major averages were set to wrap up a losing week. The Dow Jones Industrial Average was down about 1%, the S & P 500 by 0.4% and the Nasdaq Composite by just 0.1% this week. Week ahead calendar All times ET. Monday July 14 Earnings: Fastenal Tuesday July 15 8:30 a.m. CPI (June) 8:30 a.m. Empire State Index (July) 8:30 a.m. Hourly Earnings final (June) 8:30 a.m. Average Workweek final (June) Earnings: J.B. Hunt Transport Services , Citigroup , State Street , Wells Fargo , JPMorgan Chase , The Bank of New York Mellon, BlackRock Wednesday July 16 8:30 a.m. PPI (June) 9:30 a.m. Business leaders survey (July) 9:15 a.m. Capacity Utilization (June) 9:15 a.m. Industrial Production (June) 9:15 a.m. Manufacturing Production (June) 2 p.m. Beige Book 6:30 p.m. New York Federal Reserve Bank President and CEO John Williams gives remarks on NYABE Distinguished Speaker Series Earnings: Kinder Morgan , United Airlines , Morgan Stanley , Goldman Sachs Group , Johnson & Johnson , Bank of America , PNC Financial Services Group , M & T Bank , Progressive Thursday July 17 8:30 a.m. Continuing Jobless Claims (07/05) 8:30 a.m. Export Price Index (June) 8:30 a.m. Import Price Index (June) 8:30 a.m. Initial Claims (07/12) 8:30 a.m. Philadelphia Fed Index (July) 8:30 a.m. Retail Sales (June) 10 a.m. Business Inventories (May) 10 a.m. NAHB Housing Market Index (July) 12 p.m. New York Federal Reserve Bank Director of Research Kartik Athreya speaks at General Membership Luncheon Earnings: Netflix , Abbott Laboratories , U.S. Bancorp , Fifth Third Bancorp , Citizens Financial Group , PepsiCo , Elevance Health , Marsh & McLennan , GE Aerospace Friday July 18 8:30 a.m. Building Permits preliminary (June) 8:30 a.m. Housing Starts (June) 10 a.m. Michigan Sentiment preliminary (July) Earnings: Truist Financial , Schlumberger , American Express , 3M , Regions Financial , Charles Schwab , Huntington Bancshares
Source – CNBC
