U.S. companies broadly notched better-than-expected results in the second quarter, even as overall earnings growth for the S&P 500 saw a decline. Equity investor Carrie King sees more interesting developments beyond the numbers and posits one area that may be getting tired as another readies for a reawakening.
By the numbers
Earnings for S&P 500 companies largely came in better than expected for the second quarter, even as analyst expectations had been rising throughout the reporting season. The number of companies beating estimates on both sales and earnings was slightly better than the historical average, yet stock prices were not well rewarded for their relatively strong showing. It may be that much of the good news is already baked into prices.
Overall, the S&P 500 is tracking for a year-over-year earnings decline, dragged down primarily by energy and materials. Many analysts have suggested that Q2 could represent the trough, with an earnings upturn kicking off in Q3.
Consumer discretionary led among S&P 500 sectors, with the hotels, restaurants and leisure segment more than doubling its prior year’s earnings growth. The average market reaction to beats in the sector: a disappointing -2.3% return the day after reporting.
Beyond the numbers
Much of our analysis as forward-looking fundamental investors center on what companies are saying and parsing that alongside the data.
The numbers suggest consumers are still making up for lost fun since the pandemic. And the rhetoric from travel and restaurant company managements has been equally buoyant, with notes of “further acceleration,” “improving trends,” “good momentum” and even some “surprised by consumers’ resilience.”