Brexit Bumped Out Of The Market's Mind By Impending Earnings Season

The long-term economic impact of the Brexit is still a topic of hot debate on Wall Street, but Argus believes the Brexit is about to take a backseat to Q2 earnings season in the minds of U.S. investors.

Alcoa Inc AA is set to kick off earnings season on Monday, and Argus believes U.S. companies will deliver better numbers than most analysts are expecting.

Consensus analyst expectations are for the S&P 500 to deliver a roughly 5 percent year-over-year earnings decline in Q2. Argus is calling for a more modest decline of 1–3 percent. Excluding the energy sector, Argus is actually expecting a slight uptick in earnings.

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The big danger the firm sees is not with the numbers U.S. companies will deliver for Q2. Instead, it’s with the guidance they will issue for the rest of 2016.

While expectations for Q2 are relatively low, a strong U.S. economy, jobs growth, cheap gasoline and a stabilizing energy sector have led to increasing optimism about earnings in the second half of the year.

“Against this backdrop of heightened expectations, guidance for 3Q earnings better be good,” Argus warned. “Otherwise, the market could be in for another rough July-August period for the third time in six years.”

Last year, the SPDR S&P 500 ETF Trust SPY fell more than 4.7 percent between the beginning of July and the end of August.

Disclosure: The author holds no position in the stocks mentioned.