Tuesday's Market Minute: 2Q Earnings Season Takeaways So Far

With the final month of the summer now upon us, global markets are continuing their upward momentum. Chinese markets – namely the nation’s tech stocks – are finding their footing after experiencing a degree of selling last month. And while Europe’s outlook is still a bit shaky, the vaccine rollout efforts continue to aid its broader economy, all while earnings season continues in the U.S., with 150 companies in the S&P 500 still on deck to report their quarterly results. We are now roughly halfway through second-quarter earnings, and results continue to blow past the Street’s expectations by sizable margins. More importantly, estimates for the third and fourth quarter and into next year continue to rise.

So far in the second quarter, earnings are up 86%, which is the highest on record since the fourth quarter of 2009. Revenue is up over 20%, also setting a new record. This is now the same tale that has been told for several consecutive quarters. According to Refinitiv data, earnings (on average) are coming in 18% above expectations compared to a historic bar of 3-5% above expectations. Plus, this momentum is showing no signs of slowing. Refinitiv reported that the S&P 500’s third-quarter estimates as of July 1 were up over 24%, which has been revised in present-day to be up over 28%. Fourth-quarter estimates from July 1 through today have also been revised up 3%.

One of the biggest concerns for both traders and investors alike is the market’s current valuation at more than 20 times the 2022 estimates. This coupled with seasonal weakness typically experienced in the fall, as well as unknowns surrounding rate hikes and the Fed, is causing a degree of uncertainty in the back half of the year. Not to mention, the risks surrounding the Delta variant and the widespread spike.