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Investment Ideas U.S. Q2 earnings seen declining slightly versus a year ago

Second-quarter earnings for S&P 500 companies are expected to have declined fractionally from the year-ago quarter, according to IBES data released on Wednesday from Refinitiv, with estimates for the just-finished period turning negative after gradually declining for weeks.

Analysts expect earnings for the quarter to have slipped 0.005 per cent. If that forecast holds true, it would mark the first quarterly decline in earnings for companies in Wall Street’s benchmark S&P 500 index since 2016, based on Refinitiv’s data.

But actual earnings could end in positive territory since the majority of companies tend to beat analysts’ expectations when they report. That is what took place in the first-quarter reporting period, which was forecast to show an earnings decline but ended with profit growth of 1.6 per cent.

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The second-quarter earnings season is due to start in earnest in less than two weeks.

Still, strategists note that guidance from companies for the second quarter has been more negative than recent quarters.

S&P 500 companies have been issuing negative outlooks for the second quarter at the highest rate since the first quarter of 2016, Nicholas Colas, co-founder of DataTrek Research, wrote in a research note Wednesday, citing data from FactSet.

So far, 87 have guided downward compared with an average of 74 per quarter going back to 2006, with technology companies responsible for most of the increase in warnings, he wrote.

Colas said lower global interest rates are largely responsible for the significantly higher valuation for the S&P 500 as it has returned to record highs after a strong six-month run.

“Corporate earnings have been stable,” he wrote.

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