"The peak season has passed"? HSBC expects earnings growth in US stocks to hit the brakes in the second half of the year.

HSBC states that the US stock market has experienced another round of strong earnings performance in the reporting season, with the S&P 500 index expected to see a 10% growth in earnings per share in the second quarter. So far, the proportion of companies surpassing earnings expectations is the highest in recent years, with technology and financial stocks performing particularly well. Market sentiment is improving, but mainly concentrated in a few industries; sectors heavily impacted by tariffs, such as non-essential consumer goods and essential consumer goods, are underperforming. HSBC predicts a 10% growth in earnings per share for the S&P 500 index in the second quarter. More than two-thirds of the companies in the S&P 500 index have reported earnings, and the actual results have been better than expected. The initial widespread expectation was a growth rate of 5%, but the actual earnings growth is now approaching double that expectation. Financial and technology stocks are leading, with both sectors seeing double-digit earnings growth. Until now, HSBC's analysts have highlighted the significantly better-than-expected performance of US companies (July 17) and raised expectations for Bank of America Corp (July 16). In the tech sector, over 90% of tech stocks have exceeded earnings expectations, with many companies emphasizing the benefits of artificial intelligence. More than half of the tech sector, including the highly anticipated NVIDIA Corporation (NVDA.US), has yet to report earnings and is set to do so on August 27. HSBC notes that there have been changes in earnings forecasts and market sentiment, but these changes are not universal. Earnings forecast and performance expectations sentiment are on the rise, continuing to improve since hitting bottom two months ago. However, this improved sentiment and earnings are not widespread but concentrated in a few industries. With earnings surpassing expectations, profit forecasts are also rising in the technology/artificial intelligence and financial sectors. In these sectors and the utilities sector, sentiment about performance expectations is also improving: all of these sectors are less affected by trade volatility. Industries heavily impacted by tariffs and regulatory changes, such as essential consumer goods, non-essential goods, and healthcare, have seen downward adjustments in earnings expectations and weaker performance guidance. HSBC points out that overall, the third quarter appears to be affected: profit margins remain stable and are expected to reach a high level of 13.2%. Once again, the technology and financial sectors are leading the improvement in profitability. The communications services industry alone reported that the net profit margin has risen nearly 500 basis points due to the significant increase in earnings and profitability of Meta (META.US). However, HSBC currently anticipates that the third quarter will face more severe impacts as inventories decrease and relief measures take time. Overall, the estimated effective tariff rate in the US is 18% currently, compared to 2.5% at the beginning of the year. HSBC expects earnings growth in US stocks to slightly slow down in the second half of the year. HSBC recently raised its target level for the S&P 500 to 6400 points, reflecting the better-than-expected earnings performance. However, HSBC still expects earnings growth to slow down in the second half of the year, reflecting the pressure of tariffs and the impact of economic weakness. HSBC's fundamental forecast assumption is that earnings per share will increase by 8% year-on-year in the second half of 2025, compared to a 12% increase in the first half of 2025. This growth is being driven by the resilience of the technology sector, as companies take measures to offset some negative impacts (such as economic slowdown and rising corporate costs) and improve efficiency.