Stock market's upcoming earnings season may delay 'overdue' pullback for S&P 500

By Christine Idzelis

The U.S. stock market's upcoming earnings season should be "solid," but expecting growth estimates over the next couple months to increase for the second half of 2024 seems "a lot to ask," according to LPL Financial.

The market probably won't see a "crack in the [artificial-intelligence] story in the second-quarter" results, Jeff Buchbinder, chief equity strategist at LPL Financial, said by phone Tuesday. "Good earnings news may delay the pullback that we're probably overdue for," he said of the S&P 500 index.

Big Tech stocks will likely again make a large contribution to the S&P 500's earnings growth for the second quarter, but the rest of the market should start to contribute as well, according to his research note this week. For example, growth in earnings per share will also likely come from areas such as healthcare, financials, energy and utilities, his note shows.

Big Wall Street banks will kick off earnings season for the second quarter later this month, with JPMorgan Chase & Co. (JPM), Citigroup Inc. (C) and Wells Fargo & Co. (WFC) slated to report their results on July 12. The analyst consensus estimate calls for a 9.2% rise in the S&P 500's EPS growth for the second quarter on a year-over-year basis, according to LPL.

Buchbinder said by phone that he expects EPS growth to rise into the double digits for the period. "A double-digit gain for the first time since the fourth quarter of 2021 looks highly likely," according to his note.

The S&P 500 is up thus far in July, after rallying 14.5% in the first half of 2024, according to FactSet data.

"With stock valuations elevated after such a strong first half, earnings growth will be key to holding, or potentially building on these gains," Buchbinder said in his note. "Our bias remains that a pullback is overdue" and investors should wait to buy the dip, he said, but "the next six weeks of earnings results may not offer that opportunity."

Within Big Tech, Buchbinder said he expects that the "Super Six" - Google parent Alphabet Inc. (GOOGL) (GOOG), Amazon.com Inc. (AMZN), Facebook parent Meta Platforms Inc. (META), Microsoft Corp. (MSFT), Nvidia Corp. (NVDA) and Apple Inc. (AAPL) - will be big drivers of the S&P 500's earnings growth in the second quarter.

By phone, he said that he expects that the "broadening out of earnings growth will be a long process" that runs well into 2025, with Big Tech likely remaining a big driver in this year's second half.

"We will watch company guidance closely throughout earnings season to help us gauge just how much earnings growth corporate America might be able to produce in the back half of 2024," Buchbinder said in his note. "Given a steady, but not spectacular, economy and continued investment in AI, executives are unlikely to cut their outlooks much, if at all."

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"While our expectation is for stocks to pull back at some point this summer," Buchbinder said in his note, "a dip may not emerge until August after most of the earnings news is reflected in stock prices."

-Christine Idzelis

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07-06-24 1001ET

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