Core Viewpoint - The S&P 500 index is expected to report a 4.8% growth rate in earnings for the second quarter of 2023, which is the lowest since Q4 2022, raising questions about whether this estimate will hold true [1] Group 1: Earnings Growth Expectations - Historical trends suggest that the S&P 500 may achieve over 9% year-over-year earnings growth in Q2 2023, as actual earnings often exceed expectations [3] - Over the past 10 years, actual earnings growth for S&P 500 companies has exceeded expected growth in 37 out of 40 quarters, with only three exceptions [3] - The average actual earnings growth has been 6.9% higher than expected over the past decade, with 75% of companies reporting actual earnings above expectations [4] Group 2: Recent Performance and Adjustments - In the last five years, the average actual earnings growth has been 9.1% higher than expected, with 78% of companies exceeding their earnings forecasts [4] - For the past four quarters, actual earnings growth was only 6.3% above expectations, with 77% of companies reporting higher actual earnings [5] - Applying the most conservative average growth adjustment from recent periods, the expected actual earnings growth for Q2 2023 is at least 9.5% [6] Group 3: Current Reporting Trends - As of July 11, 2023, 71% of the 21 S&P 500 companies that reported actual earnings for Q2 2023 exceeded expectations, with an overall earnings growth of 4.6% above forecasts [6] - Despite positive surprises in earnings reports, downward revisions to overall earnings expectations have led to a slight decrease in the S&P 500's growth rate from 4.9% to 4.8% since June 30 [6]

Core Viewpoint - Morgan Stanley's strategy team highlights 15 stocks with short-term catalytic potential, indicating that S&P 500 index earnings growth in Q2 may exceed expectations [1] Earnings Expectations - The market anticipates a 5% year-over-year increase in S&P 500 Q2 earnings per share and over 4% revenue growth, but actual growth may be stronger [1] - The seven major tech companies are expected to see a 14% increase in net profit, while the remaining 493 constituents may experience a 3% decline [1] - Despite analysts lowering earnings expectations from April to May, the earnings revision has rebounded from -25% to approximately 1%, suggesting Q2 earnings will likely exceed expectations, aligning with the historical average of 4%-5% [1] Recommended Stocks - **argenx SE (ARGX.US)**: undervalued R&D pipeline, target price $700 [2] - **Atlassian (TEAM.US)**: continuous revenue growth potential over 20% and expected margin expansion, target price $320 [3] - **Chewy (CHWY.US)**: benefits from marketing and product optimization, expected revenue to maintain or exceed Q1 levels, target price $50 [4] - **CVS Health (CVS.US)**: advantages from competitor store closures and growth in pharmacy benefit management, target price $80 [4] - **DraftKings (DKNG.US)**: potential earnings inflection point in Q2, with actual licensing rates offsetting tax and regulatory pressures, target price $52 [4] - **Eaton Corporation (ETN.US)**: benefits from improved profit margins in U.S. electrical business, target price $375 [5] - **Eli Lilly (LLY.US)**: core products Mounjaro and Zepbound expected to contribute $8.2 billion in revenue, exceeding expectations may lead to 2025 guidance upgrades, target price $1,135 [5] - **F5 (FFIV.US)**: positive outlook due to demand growth in cloud and load balancing products, target price $305 [6] - **NVIDIA (NVDA.US)**: strong end-user demand and accelerated shipments of rack-level products supporting supply-side growth, target price $170 [7] - **Omada Health (OMDA.US)**: operational leverage through technology empowerment and multi-disease sales, target price $25 [8] - **Southwest Airlines (LUV.US)**: potential stock rebound if internal guidance is met and baggage fee impacts are confirmed as limited, target price $38 [9] - **Valley National Bank (VLY.US)**: expected net interest income growth of 3% quarter-over-quarter, target price $11 [10] - **Western Digital (WDC.US)**: undervalued gross margin expansion prospects, target price $85 [11] Cautious Outlook - **National Storage Affiliates Trust (NSA.US)**: cautious due to expected funds from operations (FFO) per share being below market and company guidance, target price $30 [12] - **Teradyne (TER.US)**: revenue and earnings per share forecasts for FY2026 are 7% and 14% below Wall Street expectations, target price $74 [13] Summary - Overall, Morgan Stanley's recommendations combine company fundamentals, industry trends, and market sentiment, providing diversified options for investors [14]