U.S. companies head into earnings facing high expectations

U.S. companies releasing quarterly results in the coming weeks face investors who expect no less than stellar growth, with estimates particularly high for Wall Street technology heavyweights such as Nvidia

Second-quarter earnings for S&P 500 companies are expected to have jumped 10.1 per cent year-over-year, based on LSEG data as of Friday, accelerating from 8.2 per cent growth in the first quarter. That aggregate second-quarter forecast is down just slightly from a 10.4 per cent forecast at the start of April.

Companies frequently give conservative quarterly forecasts in a bid to soften investor expectations. S&P 500 companies have been slightly less pessimistic this time around, with negative outlooks outpacing positive ones by 2 to 1 compared with 3 to 1 for the first quarter and the 2.5 to 1 long-term average, LSEG data shows.

BofA Securities strategists have said S&P 500 estimates typically fall 4 per cent in the three months before a reporting season, based on the average since 2000. The S&P 500 technology sector index is up 32 per cent so far in 2024, leading gains among sectors, followed by communication services, which is up 27 per cent. The S&P 500 is up 17 per cent since Dec. 31.

“The sectors that have been given up for dead, like energy and financials, will start to have much better year-over-year comparisons, and we think it’s a reasonable bet that we will see a broadening out of this rally,” said Phil Orlando, chief equity market strategist at Federated Hermes.Also supporting stocks have been investor expectations that the economy has cooled enough to allow the U.S. Federal Reserve to start cutting interest rates this year.

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