We see room for S&P 500 earnings to beat on low expectations: HSBC

Investing.com — HSBC analysts see room for S&P 500 earnings to outperform expectations in Q3, given the low forecasts heading into earnings season.

According to HSBC, “S&P 500 Q3 earnings growth is expected at 4% year-on-year,” a sharp decline from the 12% growth seen in Q2.

The bank says this marks the lowest growth expectation since Q3 2023.

“Seven out of 11 sectors are expected to see a slowdown of earnings growth on a y-o-y basis, most especially financials, consumer discretionary, and utilities who face a tough comp base. But even sequentially, the earnings pictures do not look much better with expectations of 1% q-o-q growth and five sectors expected to report a sequential decline in EPS,” said HSBC.

Notably, financials, consumer discretionary, and utilities are expected to see the most significant slowdowns due to tough year-on-year comparisons.

However, HSBC sees “room for earnings to beat on low expectations” driven by positive corporate guidance and a solid macroeconomic backdrop.

While consensus is bracing for weaker performance, the firm highlights that more than 79% of companies beat Q2 earnings estimates, and sentiment indicators suggest improving management commentary.

The energy sector is forecast to drag down overall S&P 500 earnings, with a projected 20% year-on-year decline.

Excluding energy, S&P 500 earnings are expected to grow by 8%, driven primarily by the “Mag 7” tech companies, which are anticipated to post 19% growth. IT, communication services, and healthcare sectors are expected to lead earnings growth with 10%-15% increases.

Given the solid macro backdrop, HSBC anticipates “space for EPS beats” during this earnings season, especially in sectors with low expectations.