The second quarter earnings season is about to begin, and US equity markets have reached record levels. This optimism, which many hope will now be confirmed by corporate results, has boosted the market.
But earnings expectations are low. Bloomberg reports that analysts expect a 2.5% increase in profits of the S&P 500 for Q2. This would be the lowest earnings season since early 2023.
The outlook for the market has dimmed despite recent gains.
Profits are forecast to decline in six of S&P 500’s eleven sectors.
The forecast growth for the index benchmark has fallen to 7.1% from 9.4%.
Market experts said that the lower bar could work to the benefit of the firms, as they can surpass the expectations.
Kevin Gordon, Charles Schwab’s senior investment strategist, said to Bloomberg that the focus will be on understanding the impact of gross margins.
Earnings season begins unofficially on Tuesday with the release of key earnings reports by JPMorgan Chase Citigroup and BlackRock.
In the next week, other high-profile firms such as J.B. Hunt or Netflix will also release their results.
Big tech spending is dominated by AI
US technology giants are continuing their aggressive drive into artificial intelligence despite macroeconomic uncertainties and trade concerns.
Bloomberg estimates that Microsoft, Meta Amazon and Alphabet will spend $337 billion on capital expenditures by 2026. This is an increase of $311 billion from this year.
The investments show that AI is a long-term investment.
The “Magnificent 7” — Apple Microsoft Alphabet Amazon Nvidia Meta Tesla Tesla — is expected to report a combined profit increase of 14% in Q2. The rest of S&P 500 will see a 0.1% decline.
AI hyperscalers spent alone more than $8 billion in the first three quarters of 2025, and they are expected to spend $300 billion collectively over the next 12 months. This will further solidify their position as growth engines.
Complexity increases with trade tensions, currency movements and other factors
The impact of the tariffs imposed by President Trump has not yet been fully reflected in earnings for corporations, despite earlier concerns.
Bloomberg reports that the S&P 500’s net income margins are expected to drop to their lowest levels since early 2024. However, this could be temporary.
The margins are expected to recover in the next quarters, provided that cost cutting or AI gains become real.
Over the Atlantic, European companies face greater challenges.
Citigroup’s index shows consistent downgrades in earnings since mid-March. Automakers and miner companies are particularly affected.
Export-oriented firms could be further impacted by a stronger euro, which is up 13% this year against the dollar.
In the U.S. the decline of the dollar is a silent tailwind that multinationals can benefit from.
The dollar’s first half performance is the worst since 1973, with a decline of 10% over the past year.
David Adams, a Morgan Stanley analyst, said that the currency weakness should boost earnings for companies with large foreign exposure.
Lisa Shalett, of Morgan Stanley concluded that “it’s a great market for some people but not everyone.”
In an environment of low correlation, picking winners among mixed earnings could be the key to successfully navigating through the coming months.
This article Wall Street prepares for the weakest earnings since 2023 amid high market prices appeared first on The ICD
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