HSBC Highlights Potential for S&P 500 Earnings to Surpass Low Expectations

HSBC analysts suggest that S&P 500 earnings could exceed expectations in the third quarter, particularly due to low forecasts as earnings season approaches.

The bank projects that S&P 500 earnings growth will be around 4% year-on-year, a significant drop from the 12% growth recorded in the previous quarter. This marks the lowest growth expectation since Q3 2023.

According to HSBC, seven of the eleven sectors are anticipated to experience a slowdown in year-on-year earnings growth, particularly in financials, consumer discretionary, and utilities, all of which face challenging year-on-year comparisons. Sequentially, the earnings outlook is also subdued, with expectations of only 1% quarter-on-quarter growth and five sectors predicted to report a decline in earnings per share.

Despite this, HSBC sees potential for earnings to surpass low expectations, influenced by positive corporate guidance and a strong macroeconomic environment. While the consensus forecast is for a weaker performance, it is noted that over 79% of companies surpassed earnings estimates in Q2, and sentiment indicators reflect improved management outlooks.

The energy sector is expected to negatively impact overall S&P 500 earnings, with a forecasted 20% decline year-on-year. However, when excluding energy, S&P 500 earnings are anticipated to grow by 8%, largely driven by the “Magnificent Seven” tech companies, which are expected to achieve 19% growth. The information technology, communication services, and healthcare sectors are also projected to lead earnings growth with increases between 10% and 15%.

Given the robust macroeconomic conditions, HSBC anticipates opportunities for earnings per share to exceed expectations during this earnings season, especially in sectors facing low forecasts.