Amid all the talk of tariffs, interest rate cuts and geopolitical tensions swirling around the stock market, it's easy to forget this investment fundamental: Buying a stock is a bet on a company's future profit potential. In the week ahead, investors will be reminded of that as second quarter earnings season gets underway.
It starts with big banks. Citigroup, Goldman Sachs, JP Morgan, Wells Fargo and Bank of America will release their second quarter results by the middle of the week. The financial sector is expected to be one of the industries to show profit growth in the quarter. While profits for the S&P 500 stock index overall are expected to fall 2.6% compared to a year ago, profits in the financial sector are forecast to increase 1.4 percent, according to data from FactSet. That's certainly not tremendous, but it is growth.
Using another measuring stick, the financial sector is predicted to turn in the strongest year-over-year earnings per share growth among all the S&P 500 sectors – up 4.5% according to S&P Global Market Intelligence. That number is helped out though by the billions of dollars of stock buybacks, which reduces the number of outstanding shares, thereby boosting the earnings per share figure.
There is no shortage of corporate calls during the week giving investors the chance to discern the direction of the overall economy. For instance, JB Hunt, CSX and Prologis can reflect the state of the economy through their shipping business thanks to their trucking, railroad and supply chain work. That trio is among the dozens of companies scheduled to release their quarterly results this week. The world's largest publicly traded company also is on that list: Microsoft.
Headlines about the stock market may be filled with speculation about the Federal Reserve possibility cutting its short-term interest rate later this month and another round of trade talks between the U.S. and China, yet it's future profits why long-term investors stick with a stock, and their loss of confidence in future growth why they would sell.
ABOUT THE WRITER
Financial journalist Tom Hudson hosts "The Sunshine Economy" on WLRN-FM in Miami, where he is the vice president of news. He is the former co-anchor and managing editor of "Nightly Business Report" on public television. Follow him on Twitter @HudsonsView.
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