As we head into 3Q earnings season, the question isn’t whether earnings will be good, it’s whether earnings will be good enough. Standout earnings from the previous quarter (+25% year-over-year) have heightened expectations, as investors are now accustomed to the impact of the tax cuts on both sales (healthy business and consumer spending) as well as profit margins. The S&P 500 rose more than 7% in the third-quarter alone.
While 3Q earnings overall are still likely to show healthy 20%+ gains over the previous year, there are few things to watch for: 1) tight jobs market pushing wages higher and eating into profits; 2) impact of the rising U.S. dollar on firms that have a large percentage of overseas sales (which will be reduced when translated to dollars); and 3) early impacts of the tariffs on results and overall business sentiment.
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