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U.S. Second-Quarter Earnings Season: A Look at Consumer Health and Market Performance


As the U.S. second-quarter earnings reporting season commences, investors eagerly anticipate insights into consumer health amidst an economy grappling with persistently high inflation. Despite these challenges, the stock market has been on a steady climb throughout the year.

Consumer Health Update

Goldman Sachs Group analysts, led by Chief U.S. Equity Strategist David Kostin, highlight that the condition of the consumer has been a topic of intense debate among investors. The upcoming results from the consumer discretionary and staples sectors will provide a much-needed status update. According to consensus estimates, S&P 500 index companies are expected to witness a 9% decline in profits for the second quarter compared to the previous year. Furthermore, the index’s net profit margins are projected to shrink year over year for the fourth consecutive quarter. However, analysts anticipate that consumer discretionary stocks will exhibit the most growth among the select few sectors poised for expansion.

Market Performance

The performance of the S&P 500’s consumer discretionary sector index (SP500.25) has been exceptional, boasting an impressive surge of approximately 33% this year, based on Tuesday afternoon trading levels. In contrast, the broader index has experienced a more modest gain of slightly over 15% according to FactSet data. Conversely, the consumer staples sector (SP500.30) has struggled, declining by over 1% during the same period.

Consumer Staples Outlook

The Goldman Sachs research note reveals that their consumer staples analysts anticipate a gradual end to the exceptional growth witnessed in the food industry due to inflation-induced sales moderation. Consequently, 2023 EPS estimates for consumer staples were revised downward by 1% since the beginning of the second quarter.

Key Players to Watch

Two notable companies within the consumer staples sector, Conagra Brands Inc. (CAG) and PepsiCo Inc. (PEP), are slated to report their latest quarterly earnings results on Thursday, according to the research note.

Factors Driving Consumer-Discretionary Growth

The consumer-discretionary sector of the S&P 500 has thrived this year, primarily propelled by the remarkable performance of homebuilders and the success of two megacap companies, Tesla Inc. (TSLA) and Inc. (AMZN), commonly associated with Big Tech. In fact, Big Tech has been a major driving force behind the S&P 500’s gains in 2023.

In conclusion, the second-quarter earnings reporting season is expected to shed light on consumer health amid an inflationary economy. Additionally, market performance within the consumer discretionary and staples sectors will provide valuable insights to investors seeking growth opportunities.

Homebuilding Front and S&P 500 Outlook

Goldman analysts have highlighted Lennar Corp. (LEN) as a company experiencing “continued demand strength heading into the summer.” This positive sentiment also extends to the homebuilding sector as a whole. Despite the ongoing market rally in 2023, homebuilder stocks are still considered “cheap” compared to the S&P 500.

Forward Earnings Revisions and Economic Forecasts

Analysts note that forward earnings revisions for the broader S&P 500 index appear to have bottomed out. Consensus estimates for earnings per share in 2023 and 2024 saw a steady decline from the beginning of the year until the first-quarter earnings season. However, there are positive signs as Goldman projects that the S&P 500 will achieve an EPS of $224 in 2023, which represents 1% growth and surpasses consensus estimates of $220.

The baseline forecast assumes that the U.S. economy will avoid a recession and that inflation will gradually decrease. It is worth noting that Goldman believes predictions for next year are overly optimistic. Their 2024 EPS forecast of $237, indicating 5% growth, remains below consensus estimates of $244.

Factors Impacting Profitability

During the second-quarter earnings season, Goldman analysts will closely monitor companies’ ability to boost sales and drive profits. They emphasize that firms can expand profit margins if price inflation surpasses input cost inflation.

Inflation and Market Performance

The U.S. consumer-price index, set to release on Wednesday, will provide insights into inflation trends in June. Although cost-of-living increases have moderated since their peak in 2022, the Federal Reserve continues to prioritize reducing inflation to their target of 2%.

At the time of writing on Tuesday afternoon, the U.S. stock market was trading positively ahead of the CPI inflation report. The S&P 500 was up by 0.3%, the Dow Jones Industrial Average climbed 0.6%, and the Nasdaq Composite edged 0.1% higher.

Outlook for the S&P 500

Goldman’s analysts project that the S&P 500, currently trading around 4,422, will reach 4,500 by the end of this year. While this falls below their 2023 forecast, it demonstrates continued expected growth in the market.

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