Online Reporter
The S&P 500 Index is on the cusp of a record high but with earnings season just weeks away, the foundation of the rally is about to get a major test.
With tariff headwinds still a concern, Wall Street sees profit growth of 2,8 percent year-over-year for the second quarter for the benchmark, according to data compiled by Bloomberg Intelligence.
That would be the smallest jump in two years. Adding to the concern, only six of the 11 S&P 500 sectors are projected to post a bump in earnings, the fewest since the first quarter of 2023, estimates compiled by Yardeni Research show.
The lackluster forecasts magnify warning signs that are piling up about the sustainability of the equities rally.
Some market watchers are cautioning that valuations are looking lofty, and that the S&P 500 would need an earnings boom or drastic Federal Reserve interest-rate cuts to justify current levels. Technical analysts, meanwhile, see the index potentially declining in coming months unless more sectors join the rally.
“There’s definitely a risk for the stock-market rally,” said Sarah Hunt, chief market strategist and partner at Alpine Woods Capital Investors.
“Earnings are a big driver for the market and one of the biggest questions now is if the deterioration in some sectors will be worse than the acceleration in other sectors.”
The potential impact of global tariffs is a big reason estimates for the upcoming earnings season that starts in mid-July are gloomy.
Companies are already starting to issue warnings: Earlier this week, FedEx Corp. said that its profit would be worse than expected this quarter and declined to offer guidance for the rest of the year, citing an “uncertain global demand environment.”
General Mills Inc. echoed the concern, projecting a lower adjusted profit as value-seeking consumers feel pressured by tariffs, conflicts around the world and shifting regulations. — Bloomberg
