Stocks enter the second-quarter earnings season this week having staged a sharp recovery from the spring swoon, riding the AI boom. As usual, the big banks will kick things off, with JPMorgan JPM, Bank of America BAC, and Wells Fargo WFC reporting on Tuesday. Tuesday will also see the release of the June Consumer Price Index report, a key data point for the Federal Reserve’s interest rate outlook.
In this week’s Markets Brief, we explain why this earnings season could be more important than usual, take a closer look at what to watch as the big banks report, and hear from Bank of America about the World Cup’s likely impact on the spending.
A Critical Earnings Season
It’s easy for investors to tune out the noise of quarterly earnings, especially with all the games that companies (and analysts) play to make it easier to beat expectations. But more may be riding on how this earnings season plays out. Part of the reason is what’s driving the stock market rally. That starts with the idea that there are two key levers to equity prices: earnings and the multiple investors are willing to pay. And analysts say that earnings, not rising multiples, have driven this year’s rally.
“The 21% S&P 500 return over the past 12 months has been driven entirely by earnings, making the upcoming reporting season an important catalyst for the forward trajectory of the market,” analysts at Goldman Sachs wrote at the end of June. “During the last 12 months, the S&P 500 has rallied by 18% with no increase in the forward P/E multiple, which now stands at 20x.”
The challenge is that analysts have been ramping up earnings expectations for the second quarter. As of July 2, earnings on the S&P were expected to rise 23.3% year over year, up from expectations of 18.8% at the end of March, according to FactSet. That would represent the second quarter in a row of 20%-plus earnings growth and the seventh straight quarter of double-digit earnings gains. “Analysts and companies have been more optimistic than normal in their earnings outlooks for the second quarter,” writes John Butters, FactSet’s senior earnings analyst.
That optimism is especially strong in what is perhaps the most important corner of the market: technology. Strategas managing director Ryan Grabinski points to Samsung’s recent selloff after investors reacted negatively to a huge price increase, thinking it wasn’t strong enough. “As Samsung’s results … highlighted, the bar is high for the tech sector heading into second-quarter earnings season. With the sector expected to deliver earnings growth of more than 65%, it’s fair to say expectations are elevated,” he says.
A Consumer Surprise?
Of course, there are other sectors to watch. Jim Caron, chief investment officer of the portfolio solutions group at Morgan Stanley Investment Management, will keep a close eye on consumer-related stocks, where he thinks expectations are too low. “We’ve turned positive on the consumer,” he explains, “which has not been a very loved sector.”
Caron says the narrative around the consumer was negative throughout the first half of the year. Coming into 2026, the job market was weakening, and the lingering impact of 2025’s tariffs was keeping inflation high. Then came the gasoline price peak that resulted from the Iran war. “Those headwinds are now fading,” Caron says. Combined with a stronger starting point, this could lead to some positive surprises among consumer-facing stocks. “The consumer is underappreciated.”
What to Watch in Big Bank Earnings
While many consumer stocks, especially retailers, don’t report until the back half of earnings season, the big banks reporting this week will offer a glimpse into how consumers are faring from a credit perspective. We checked in with Morningstar equity analyst Austin Taggart on what he’ll be watching as the country’s biggest banks report their results. Here’s what he had to say:
- State of the consumer/credit quality: With inflation remaining stubborn and gas prices elevated following prolonged conflict in Iran, we think the consumer could be under some pressure, particularly lower-income households in a K-shaped recovery. In the first quarter, credit card spending at the big banks was strong, and headline delinquencies were pretty stable, but personal savings rates remain below pre-pandemic averages (consumers are spending down reserves). Additionally, some pockets of delinquency are worth flagging, such as 60+ day auto delinquencies, which are continuing to tick upwards. In addition, management teams may be asked about student loan delinquencies, which don’t sit on bank balance sheets directly but color the household-stress narrative.
- Net interest income and loan growth trajectory: Loan growth is expected to come in really high (potentially the highest in three years), and the Fed looks more likely to keep interest rates stable throughout 2027 than to make the one or two cuts the market was pricing in a few months ago. Banks run asset-sensitive balance sheets (assets reprice quicker than liabilities), so higher rates are positive for net interest income, all else equal. The pacifying factor is that the curve lost some steepness in the second quarter, which is a headwind for NII because banks tend to borrow closer to the short end of the curve and lend at the longer end. If banks raise NII guidance due to loan growth demand that tops expectations, that will be received very well by the market.
- Sustainability of capital markets/trading strength: Since 2020, trading revenue has been elevated from a historical context, but 2025 was a record-breaking year, and it still grew significantly year over year in the first quarter of 2026. With geopolitical and macroeconomic uncertainty remaining high, alongside the largest IPO in history occurring during the second quarter, the last three months could again break records. In theory, institutional trading should be highly pro-cyclical and normalize from current levels, but we’ve had a perfect storm of macroeconomic uncertainty and heightened asset levels, so this freight train might continue for a couple more quarters.
- Capital returns: Following strong results by the big banks during the Fed’s stress testing exercise just a couple of weeks ago (but with the unique caveat that stress capital buffers are being held flat until 2027 and Basel III Endgame updates have yet to be solidified, let alone implemented), it will be interesting to see how much the banks raise dividends and/or share repurchases. We think the banks will err on the side of remaining a bit overly capitalized until further certainty is provided on the various components that dictate Common Equity Tier 1 minimums. Large dividend hikes or share repurchase announcements will be perceived as overtly bullish.
The World Cup Brings in the Bacon For US Retailers and Restaurants
The World Cup has also supported consumer spending, albeit just in the short term. While there has been some debate about the tournament’s impact on the job market, Bank of America, which publishes data based on credit card spending, said earlier this month that “the World Cup effect is real” in host cities. Last week, the bank’s economic group released a look at how the World Cup has affected food services spending. Here’s what they had to say:
They add a caveat: The data likely undercounts spending by World Cup fans. “The BAC card data wouldn’t cover spending by international tourists, since the sample only includes US-based customers. That means the boost to retail activity from the World Cup is likely much larger than the BAC card data suggest.”
