Q2 earnings season gets off to a flying start

<p>The markets had been expecting Q2 earnings season to be negative, with earnings and sales growth both dipping. However, that is not the way things […]</p>

The markets had been expecting Q2 earnings season to be negative, with earnings and sales growth both dipping. However, that is not the way things are going so far. There have been some notable earnings beats with Google, Bank of America, and Citigroup all posting better than expected results for the three months to June.

Thank the consumer for the positive results so far:

Although it’s early days and only 10% of all companies on the S&P 500 have reported earnings, the results look promising as both earnings and sales figures have surprised on the upside. Notable outperformers include the consumer goods, and financials sectors on the positive surprise front. On the growth front, basic materials, financials and technology have seen positive sales and earnings growth so far.

This has helped to drag S&P 500 sales growth back into positive territory, after it was negative in Q1, and earnings growth is also on track for a quarterly rise this year. This doesn’t mean that there are no weak links in this earnings season, the industrial and oil and gas sectors have been very weak so far. However, we will give them the benefit of the doubt at this stage since only 5% of oil and gas companies have reported earnings, so there is time for the earnings data to improve. Added to this, the bar for growth in both of these sectors is so low that some companies are bound to beat these forecasts.

Watch the technology sector:

The technology sector could be one to watch this earnings season after Google reported a 17% rise in profits in Q2. The detail of its earnings report was also strong, with an 11% rise in advertising revenue, and a strong pick up in volume.

Google reported earnings per share of $6.99, the market had expected EPS of $6.72, this was the first time that Google had beaten estimates for several quarters and the good news was duly reflected in the share price, Google’s pre-open quote on Friday suggested that Google’s share price could open approx. 11% at the open.

A rise of this magnitude could be enough to boost the NASDAQ technology index into record high territory. This sector has already had a fantastic run in the last 12 months and is up some 25% since October 2014. A sharp rise in Google’s share price on Friday could boost this index even further.

But can the tech sector sustain these lofty heights?

This may depend on how the other large tech companies fare during earnings season. Yahoo, Apple, and Microsoft all release earnings next week, while Twitter and Facebook both release earnings the week after. Watch out for Apple’s results. It has managed to consistently beat earnings forecasts in recent quarters, one quarter it has to slip up, surely? If it does so during this quarter then it may be the trigger for investors to take profit on their long NASDAQ positions.


Overall, if we continue to see Q2 earnings season beat expectations then US markets may be able to extend recent gains and withstand the prospect of a rate hike from the Federal Reserve later this year. Currently the earnings season looks supportive of further gains in the US index.

However, the NASDAQ could be vulnerable to profit-taking now that it is close to a record high, and specifically if tech giant Apple finally misses earnings expectations when it reports next week.

Figure 1:


Source: FOREX.com, Data: Bloomberg


Figure 2:


Source: FOREX.com, Data: Bloomberg

Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.