Corporate earnings season began in earnest this week, with major banks reporting results that exceeded expectations across the board. JPMorgan Chase & Co., Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley all reported second-quarter numbers that beat analysts’ expectations. Citigroup even reported its best quarterly earnings in a decade. However, investors’ reactions to this report were not uniform. Goldman Sachs soared on the announcement, while JPMorgan Chase and Bank of America also rose on Tuesday. However, Citigroup and Wells Fargo fell 5.3% and 2.7%, respectively, after the announcement. Morgan Stanley also cut interest rates by more than 1% on Wednesday. Separately from banks, preliminary second-quarter numbers released by IBM were below street expectations, sending the tech giant to its worst single-day decline ever. This presents a harsh reality for companies and investors. While the market is reaching new heights, the standards set for companies are rising as well. “Analysts have raised their second-quarter earnings estimates, which is a rare reflection of increased confidence,” said Scott Wren, senior global market strategist at Wells Fargo Investment Institute. “But the big question this earnings season is whether companies can outperform sky-high expectations.” Heading into the reporting period, analysts had on average expected S&P 500 earnings to expand about 24% year over year in the second quarter, according to FactSet data. If this happens, it will be the second consecutive quarter of more than 20% year-on-year profit growth. Analysts also raised their second-quarter profit forecasts from 18.8% expected at the start of the second quarter. “While strong earnings growth is typically good for stock prices, rising expectations can create a challenging backdrop for individual companies and the S&P 500 as a whole,” Wren said. “This earnings season, we see markets increasingly focused not only on whether companies are beating consensus estimates, but also on whether they can beat higher unofficial ‘whisper numbers’ circulating primarily among institutional investors.” Much of the earnings growth is expected to be driven by technology. Barclays strategist Emmanuel Cau said he expects profits, excluding tech and energy, to rise only 5% from a year ago. “Tech/Semis earnings will be particularly interesting as investors seek reassurance about the outlook for AI capex and signs of improving profitability for AI spenders,” said Kau. UnitedHealth and Netflix are among the companies scheduled to report Thursday. Later this month, Apple and Microsoft, two of the top five U.S. stocks, are scheduled to release their quarterly numbers.
