Starting in mid-July, U.S. stocks enter the busy Q2 earnings season. While companies can set their own fiscal years, most follow the calendar year and report their April to June results during this time.

Earnings season typically kicks off with major financial institutions, and this time is no different. JPMorgan Chase ($JPMorgan(JPM.US)$), Citigroup ($Citigroup(C.US)$), and Wells Fargo ($Wells Fargo & Co(WFC.US)$) are leading the way.

Following earnings releases, investors usually evaluate the company's performance for the past quarter and adjust their expectations. This could potentially lead to significant stock price volatility. Many savvy investors see this as an opportunity to enhance returns.

Q2 market outlook: optimism backed by solid performance

According to FactSet, the market expects the S&P 500 index to achieve an 8.8% year-over-year growth in EPS for Q2, maintaining strong momentum. If realized, this would be the highest earnings growth rate since Q1 2022 and mark the fourth consecutive quarter of positive year-over-year growth.

Among the 11 sectors of the S&P 500, eight are expected to report year-over-year earnings growth, with Communication Services leading the charge.

In a longer-term perspective, the Shiller PE ratio for the S&P 500 remains at a historically high percentile, though it is still below the peak seen during the dot-com bubble of 2000.

The Shiller PE ratio, developed by Nobel laureate in Economics Robert Shiller, adjusts for profit margin fluctuations over the business cycle, and is often considered a more reasonable market valuation metric than the traditional PE ratio.

Source: GoldmanSachs. Data as of Jun 28, 2024. Investing involves risk and the potential to lose principal. Past performance does not guarantee future results. This is for information and illustrative purposes only. It should not be relied on as advice or recommendation.

Notably, the five-year average ROE (Return on Equity) for the S&P 500 is at its highest level in over a century. “From that perspective, the valuations are high, but we’re not really taking it as a reason to be extra bearish,” says Christian Mueller-Glissmann, Goldman Sachs.

Solid expected earnings results might also be linked to the recent strong performance of U.S. stocks, which continue to hit new highs after short-term corrections.

Key sectors to be watched

For Q2, standout sectors in terms of expected year-over-year earnings growth include Communication Services, Health Care, and Information Technology. In contrast, sectors such as Consumer Staples, Industrials, and Materials are anticipated to see declines annually.

Source: FactSet. Data as of July 3, 2024. Investing involves risk and the potential to lose principal. Past performance does not guarantee future results. This is for information and illustrative purposes only. It should not be relied on as advice or recommendation.

Communication Services and Information Technology are thriving due to the AI boom, with Google ($Alphabet-C(GOOG.US)$) and Meta ($Meta Platforms(META.US)$) leading in Communication Services, and Nvidia ($NVIDIA(NVDA.US)$) spearheading Information Technology. The Health Care sector's growth is expected to be primarily driven by the pharmaceutical giant Merck & Co. ($Merck & Co(MRK.US)$).

Sectors projected to underperform, like Industrials and Materials, are likely feeling the pinch from the high inflation environment, as they occupy intermediate positions in the supply chain.

The Financials sector, often reporting earnings early, is worth watching. About 40% of early reporters come from this sector, making it a focal point in the initial weeks. The market expects banks to face challenges in Q2 due to an unfavorable interest rate environment and an inverted yield curve.

Banks pay short-term interest to depositors while earning interest from long-term loans. An inverted yield curve means banks are paying more but earning less, hurting their performance. However, the situation could improve if expectations for Fed rate cuts materialize, potentially easing the yield curve inversion.

How to make strategies for Q2 earnings on moomoo

Users can leverage moomoo to stay informed and strategize around upcoming earnings reports. For example, on the stock page for JPMorgan Chase (JPM), you can join discussions with other users and set up calendar alerts for earnings release dates.

Source: moomoo. Data as of market close on July 10, 2024. The company mentioned is for illustration purposes only, and any statement involved does not constitute investment advice.

The 'Company' section offers detailed earnings forecast data, including revenue, EPS, and EBIT, along with other key company fundamentals.

Source: moomoo. Data as of market close on July 10, 2024. The company mentioned is for illustration purposes only, and any statement involved does not constitute investment advice.Investing involves risk and the potential to lose principal.

The 'Earnings Calendar' feature helps you stay updated on company events. You can search for specific companies and add calendar reminders.

Source: moomoo. The company mentioned is for illustration purposes only, and any statement involved does not constitute investment advice.

Navigating the earnings season doesn't have to be a solitary endeavor. Moomoo provides timely previews and post-earnings analysis, allowing you to closely watch on key company developments.