Jin Shi Shu Ju·2025-07-14 01:25Core Viewpoint - The U.S. stock market has rebounded to historical highs after significant sell-offs in April, but analysts expect the upcoming earnings season to be the weakest since mid-2023, with S&P 500 companies projected to see only a 2.5% year-over-year profit growth in Q2 2023 [1][2]. Earnings Expectations - Analysts predict that the earnings growth expectation for the S&P 500 has decreased from 9.4% in early April to 7.1% for the entire year [1]. - The Q2 earnings forecast for S&P 500 companies is at its lowest in two years, with six out of eleven sectors expected to see profit declines [2]. Market Dynamics - Lower earnings expectations may allow companies to exceed these conservative forecasts more easily, as indicated by analysts [2]. - The earnings season is set to begin with major financial institutions like JPMorgan Chase, Citigroup, and BlackRock reporting soon [2]. Trade War Impact - There is currently no significant evidence that tariffs have drastically reduced demand, despite concerns that trade policies could affect corporate profitability [3]. - Analysts from Bank of America have not observed a major economic rebound since the imposition of tariffs [3]. Profit Margin Trends - The net profit margin for S&P 500 companies is expected to drop to its lowest level since Q1 2024, following five consecutive quarters of increases [4][7]. - This decline may be temporary, with projections indicating a recovery in profit margins by the next quarter and continuing through at least 2026, contingent on cost-cutting measures or accelerated AI adoption [4]. Technology Sector Investments - Major U.S. tech companies are expected to significantly increase their capital expenditures, particularly in AI development, with projected spending rising from $311 billion to approximately $337 billion by FY2026 [7]. - The "big seven" tech companies are anticipated to see a 14% profit growth in Q2, while the overall S&P 500 index is expected to see a slight decline of 0.1% when excluding these companies [7]. Stock Selection Environment - The degree of divergence in individual stock performance is at a rare level, with a correlation index of 0.12 among S&P 500 components, indicating a need for selective stock picking [8][11]. - Analysts suggest focusing on companies with strong cash flow and earnings potential, particularly in the energy, financial, and healthcare sectors [11]. European Market Outlook - European corporate earnings expectations have been downgraded due to concerns over the impact of the trade war on profit margins, with more downgrades than upgrades since mid-March [14]. - The strengthening euro, which has appreciated by 13% against the dollar this year, may negatively affect the profitability of European export companies [14]. Currency Impact - The weakening dollar, driven by uncertainties surrounding trade policies and potential Fed rate cuts, is seen as beneficial for U.S. export companies [15][16]. - The dollar has declined by 10% this year, marking its worst performance since 1973, which is expected to positively impact revenues for companies like Meta and Microsoft [16].