The earnings season will kick off this week and will be the main catalyst for the S&P 500, Nasdaq 100, and the Dow Jones indices as they will provide more information about the impact of Donald Trump’s tariffs on corporate America. This article provides a preview and the top things to watch.

Earnings season to provide details on growth

The second-quarter earnings season will begin on Tuesday this week, when major American banks such as JPMorgan, Citigroup, Wells Fargo, and Goldman Sachs release their results. Other top American companies like Johnson & Johnson, American Express, and Charles Schwab will release their numbers.

Data compiled by FactSet shows that analysts anticipate more earnings growth. The average earnings growth among analysts is about 8%. However, the report also estimates that the earnings growth will be in the range of 13%.

If 8% if the real number, it will mark the ninth consecutive quarter of earnings growth. The report noted:

“Based on the average improvement in the earnings growth rate during the earnings season, the index will likely report earnings growth above 13% for the third quarter, which would mark the 4th straight quarter of double-digit growth.”

A strong earnings growth will be important for two main reasons. First, the growth will demonstrate that companies have adapted well to Donald Trump’s tariffs.

These results are notable because they come as the trade war between the United States and China has intensified. Donald Trump warned that he would implement sweeping tariffs against China, which is also expected to respond with its own countermeasures of its own.

Second, strong earnings will help to justify the valuation of American companies. FactSet notes that the average P/E ratio of the index is 22.8, which is much higher than the five-year average of 19.9. 

Artificial Intelligence spending and results

The other important thing to watch in this earnings season will be results from the biggest technology companies like Microsoft, Apple, Meta Platforms, Oracle, AMD, and Nvidia.

These results will be the most important, as they will provide more insight into the AI industry, which has been the driving force behind the recent stock market rally. The AI industry has now created several companies with a market capitalization of over $1 trillion, including Nvidia, Microsoft, Broadcom, and Amazon. 

There have been concerns about the AI bubble, which analysts have warned may burst in the coming months. One of the main issues is circular investments, which has been led by companies like Nvidia and OpenAI. 

Concerns about the AI bubble is also because companies in the industry are yet to demonstrate the incremental earnings that is coming from their AI investments. 

Bank earnings and trading revenues

The other main catalyst to watch in this earnings season is on the bank earnings. Top banks like JPMorgan, Citi, Bank of America, Goldman Sachs, and Wells Fargo will publish their results.

These earnings will be the first ones since the Federal Reserve started cutting interest rates. Still, the rate cut will likely have no major impact on their earnings as it happened in September. 

The other main aspect of the earnings will be the capital markets and investment banking division. Analysts expect the results to show that the investment banking revenue jumped as companies announced deal worth over $1 trillion during the quarter. 

Additionally, analysts expect that the capital markets division will continue thriving, with it earnings growth rate coming in at 15%. Investment banking revenue is expected to come in at 27%. Financial exchanges and data, and asset management are expected to grow by 11% and 6%.

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