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The early Q2 earnings results, mostly from the Finance sector, have been better than expected. Most of these banks and brokers are not only easily beating consensus estimates, but also providing a favorable outlook for the coming periods.
Since banks are an economically sensitive sector whose operations touch all types of consumers and businesses, this favorable view of underlying business trends by the banks provides a reassuring read-through for the rest of the Q2 earnings season.
Estimates for Q2 had come under severe pressure after the quarter got underway, with the announcement of reciprocal tariffs in early April prompting analysts to materially lower their earnings expectations.
The revisions trend stabilized later in the quarter, with estimates for the Tech sector actually nudging up after coming down earlier in the quarter. Estimates had actually modestly gone up for three sectors – Consumer Discretionary, Utilities and Aerospace.
Of these three sectors, the favorable revisions trend for the Utilities sector is tied to improving demand trends as a result of AI related demand from datacenters while the positive revisions trend for the Consumer Discretionary sector is solely due to favorable revisions for media players like Disney (DIS - Free Report) , Netflix (NFLX - Free Report) and others.
The magnitude of negative revisions to Q2 estimates has been bigger than most other post-Covid periods. This suggests to us that the bar is likely low enough that companies will easily jump through them. But more than companies’ ability to beat consensus Q2 estimates, it will company guidance for Q3 and beyond that will determine the market reaction to the results.
Image: Bigstock
Is the Q2 Earnings Bar Set Too Low?
The early Q2 earnings results, mostly from the Finance sector, have been better than expected. Most of these banks and brokers are not only easily beating consensus estimates, but also providing a favorable outlook for the coming periods.
Since banks are an economically sensitive sector whose operations touch all types of consumers and businesses, this favorable view of underlying business trends by the banks provides a reassuring read-through for the rest of the Q2 earnings season.
Estimates for Q2 had come under severe pressure after the quarter got underway, with the announcement of reciprocal tariffs in early April prompting analysts to materially lower their earnings expectations.
The revisions trend stabilized later in the quarter, with estimates for the Tech sector actually nudging up after coming down earlier in the quarter. Estimates had actually modestly gone up for three sectors – Consumer Discretionary, Utilities and Aerospace.
Of these three sectors, the favorable revisions trend for the Utilities sector is tied to improving demand trends as a result of AI related demand from datacenters while the positive revisions trend for the Consumer Discretionary sector is solely due to favorable revisions for media players like Disney (DIS - Free Report) , Netflix (NFLX - Free Report) and others.
The magnitude of negative revisions to Q2 estimates has been bigger than most other post-Covid periods. This suggests to us that the bar is likely low enough that companies will easily jump through them. But more than companies’ ability to beat consensus Q2 estimates, it will company guidance for Q3 and beyond that will determine the market reaction to the results.
For more details about the Q2 earnings season and expectations for the coming periods, please check out our weekly Earnings Trends report here >>>Q2 Earnings Season Kicks Off Positively: A Closer Look