Since mid-July, the U.S. stock market has entered the concentrated disclosure period for second-quarter Earnings Reports. Although companies in the U.S. can choose their fiscal year independently, most still opt to follow the calendar year, which means releasing financial reports for the period from April to June this year. The Earnings Report season is often led by major Financial Institutions in the U.S., with JPMorgan ($JPMorgan(JPM.US)$), Citigroup ($Citigroup(C.US)$), and Wells Fargo & Co ($Wells Fargo & Co(WFC.US)$) being the first large banks to release theirs.

After the release of the Earnings Reports, investors typically evaluate the company’s operating conditions in the previous quarter based on the reports, adjusting their prior expectations, creating an opportunity for the "shoe to drop." For this reason, stock prices of companies often show significant volatility during the Earnings Report season, with frequent occurrences of large ups and downs, and many excellent investors view this season as a great opportunity to increase returns.

What are the expectations for the second quarter reports? How should one strategize entering the Earnings Report season?

Performance returns support, optimistic expectations unchanged.

FactSet data shows that the market expects the EPS growth rate for the S&P 500 Index in the second quarter to be 8.8% year-on-year, indicating continued strong growth. If this rate of growth can be achieved, it will set a new high for earnings growth since the first quarter of 2022, marking four consecutive quarters of positive year-on-year earnings growth.

Among the 11 sectors of the S&P 500 Index, 8 sectors are expected to experience year-on-year revenue growth, with the Communication Services, Medical, Information Technology, and Energy Chemical sectors leading the growth.

From a longer time perspective, the Shiller PE of the S&P 500 is at a historically high percentile, but there is still a significant distance from the extremes seen during the collapse of the Internet bubble in 2000. (The Shiller PE ratio, introduced by Nobel Laureate Robert Shiller, eliminates the fluctuations caused by profit changes in the business cycle, and is thus usually regarded as a more reasonable market valuation indicator than the regular PE ratio.)

It is also worth noting that the five-year average ROE (Return on Equity) of the S&P 500 Index as reported by Goldman Sachs is at its highest level in over a century. "From this perspective, although valuations are relatively high, this may not necessarily be a reason for the market to turn bearish," said Goldman Sachs Analysts. The strong performance of earnings is also related to the recent strong performance of U.S. stocks, which often continue to set historical highs after short-term consolidations.

Data Source: Goldman Sachs. Data as of June 28, 2024. The content of this chart is for reference only and does not constitute any investment advice. Past performance is not indicative of future results; the market carries risks, and investment should be approached with caution.

Sectors worth focusing on.

In terms of specific sectors, those expected to stand out in year-on-year revenue performance in the second quarter include Communication Services, Health Care, and Information Technology, while Consumer Staples, Industrials, and Materials sectors may experience negative year-on-year growth.

Data Source: FactSet. Data as of July 3, 2024. The content of this chart is for reference only and does not constitute any investment advice.

Both the Communication Services sector and the Information Technology sector benefit from the AI wave, for example, Google in M7 ($Alphabet-C(GOOG.US)$Meta also belongs to this Sector.$Meta Platforms(META.US)$NVIDIA, which belongs to the Information Technology Sector, needs no further explanation.$NVIDIA(NVDA.US)$The growth of the Medical Care Sector is expected to be mainly driven by the pharmaceutical giant Merck.$Merck & Co(MRK.US)$Sectors expected to perform poorly in the second quarter may be more impacted by the high inflation environment, with the Industrial and Materials Sectors belonging to the midstream of the Industry Chain.

In addition, the Financial Sector, as the 'vanguard,' is also worthy of attention. As mentioned above, about 40% of companies disclosing performance in the early stage of this earnings season belong to this Sector. The market expects that the banking industry may face some headwinds in the second quarter, as the interest rate environment is not favorable for the banking industry, which is still in a state of yield curve inversion.

As mentioned in our macroeconomics course, the business model of banks is to pay short-term interest rates to depositors while earning interest from long-term loans. With the yield curve inverted, banks pay more but earn less, which is generally unfavorable for bank performance. As expectations for a rate cut by the Federal Reserve continue to intensify, the conditions of yield curve inversion are also expected to ease.

How to deploy the second quarter earnings report trend using Futubull?

For companies nearing the performance release period, mooers can find relevant information directly on the individual stock quotation page, such as JPMorgan.$JPMorgan(JPM.US)$For example, before the performance announcement, one can not only see the current Analyst target price and ratings, but also book the company's earnings meeting online, and add calendar reminders for the earnings release.

Data source: Futubull. Data as of the close on July 10, 2024. The case is for illustration purposes only and does not constitute any investment advice or guarantees.

In addition, on the individual stock page under the 'Company' section, one can also see the company's earnings forecast data, including revenue, EPS, and EBIT three Indicators. Of course, there is more information related to the company's fundamentals in this section.

Data source: Futubull. Data as of the close on July 10, 2024. The content of this chart is for reference only and does not constitute any investment advice. Past performance is not indicative of future results, the market carries risks, and investments should be approached with caution.

The 'Earnings Calendar' feature also allows mooers to pay early attention to company dynamics. One can search for the corresponding company, enter the individual stock page, and add calendar reminders.

Data source: Futubull. The case is for illustrative purposes only and does not constitute any investment advice or guarantee.

On the investment journey, never walk alone. During the earnings season, Futubull will also timely track key company dynamics, convey fresh interpretations, present earnings forecasts and post-earnings reviews, and hope mooers will stay tuned. So Keep Calm and Happy Trading!