The barrage of Q2 earnings reports are keeping corporate earnings front and center, in a backdrop of disconcerting geopolitical headlines about cancelled civilian flights to Israel and downed military jets in Ukraine. Thankfully for the stock market, the Q2 earnings season has turned out to be fairly reassuring.
A few pockets of weakness aside, the overall picture emerging from this earnings season is one of strength and resilience. Earnings aren’t great, but they aren’t weak either. This is the takeaway from the reports thus far, including announcements from bellwether operators like Pepsi (PEP), Boeing (BA), Dow Chemical (DOW) and others on this morning’s super-buy earnings docket.
Including this morning’s reports, we now have Q2 results from 149 S&P 500 members that account for 43.9% of the index’s total market capitalization. Facebook (FB) is the key earnings report after the close today.
Total earnings for these 149 companies are up +8.6% from the same period last year on +3.6% higher revenues, with 69.8% beating EPS estimates and 52.4% coming out with positive revenue surprises. This is better performance than we have seen at this stage in other recent reporting cycles.
The growth rates — for earnings as well as revenues — are better, and more companies are coming ahead of estimates. Notably, there is some modest improvement on the guidance front as well. The improvement isn’t so much in terms of companies starting to guide higher, but rather marginally fewer guiding lower and qualitatively offering a more reassuring business outlook.
Continuation of this trend through the rest of this earnings season will represent an improvement over what we have become accustomed to seeing in recent quarters, resulting in fewer negative revisions to forward estimates. We saw some of that in the run up to the start of the Q2 earnings season. But if current trends hold, we will see more confidence in second half estimates, which will be a material upgrade of the earnings picture.
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