"Is the peak season over?" HSBC expects U.S. stock earnings growth to hit the brakes in the second half of the year

According to the Zhitong Finance APP, HSBC stated that the US stock market has once again experienced a surge in earnings during the earnings season, with the S&P 500 index's earnings per share growth in the second quarter expected to reach 10%. So far, the proportion of companies exceeding earnings expectations is the highest in recent years, with technology and financial stocks performing the most prominently. Market sentiment is improving, but it is mainly concentrated in a few sectors; industries severely affected by tariffs, such as non-essential consumer goods and essential consumer goods, are performing poorly.

HSBC expects a 10% growth in S&P 500 index earnings per share for the second quarter. More than two-thirds of the S&P 500 constituent companies have reported earnings, and the actual results have exceeded expectations. The initial general expectation was a growth rate of 5%, but the current actual earnings growth is nearly double that expectation. Financial and technology stocks are leading, with both sectors currently achieving double-digit earnings growth. So far, HSBC's US financial analysts have highlighted the significant outperformance of US companies (July 17) and raised their expectations for the US banking sector (July 16). In the technology sector, over 90% of technology stocks have exceeded earnings expectations, with many companies emphasizing the benefits brought by artificial intelligence. In the technology sector, more than half of the companies have yet to report earnings: the highly anticipated NVIDIA (NVDA.US) will announce its earnings on August 27.

HSBC points out that earnings forecasts and market sentiment have changed, but not universally. Both earnings forecasts and performance expectation sentiment have been on the rise, having increased since hitting a low two months ago. However, this improvement in sentiment and earnings is not universal but concentrated in a few sectors. With the earnings exceeding expectations, the earnings forecasts for the technology/AI sector and the financial sector are also rising. In these sectors, as well as in the utilities sector, corporate performance expectation sentiment is also rising: all these sectors are relatively less affected by trade turmoil. Industries that are more significantly impacted by tariff and regulatory changes, such as essential consumer goods, non-essential goods, and healthcare, have seen downward revisions in their earnings expectations, and their performance guidance has also weakened.

HSBC noted that overall, the third quarter seems to be affected: profit margins remain stable, expected to reach a high level of 13.2%. It reiterates that the technology and financial sectors are leading the improvement in profitability. The communication services sector alone reported that due to the significant improvement in Meta's (META.US) earnings and profitability, its net profit margin surged by nearly 500 basis points. However, HSBC currently expects that the third quarter will be more severely impacted as inventory decreases and mitigation measures take time. Overall, the effective tariff rate in the US is currently estimated at 18%, compared to 2.5% at the beginning of the year.

HSBC expects a slight slowdown in US stock earnings growth in the second half of the year. HSBC recently raised its target for the S&P 500 to 6,400 points, reflecting the better-than-expected earnings performance. However, HSBC still expects earnings growth in the second half of the year to slow down, reflecting the impact of tariff pressures and economic weakness. HSBC's basic forecast assumes that earnings per share will grow by 8% year-on-year in the second half of 2025, compared to a 12% growth in the first half of 2025 This growth is driven by the resilience of the technology sector, while companies have taken measures to offset some adverse impacts (such as economic slowdown and rising corporate costs) and improve efficiency