Nearly 100 companies, including 38 from the S&P 500, will report their Q2 earnings this week, marking a key moment in earnings season. Important reports will come from major banks and industry leaders like Netflix, 3M, and Schlumberger. We have seen a trend of negative revisions for earnings estimates for Q2 2025. Earnings are expected to grow by 4.7% with a 4% increase in revenue. This would be the slowest growth since Q3 2023, when it was 4.3%, due to estimate downgrades following tariff announcements in early April.

Sector Declines and Market Expectations

Since April, 14 out of 16 Zacks sectors have experienced declines in Q2 earnings estimates, especially in Autos, Energy, and Transportation. Even with tariff uncertainties, the market anticipates better-than-expected results because expectations have been lowered. Management is likely to provide a positive outlook. The S&P 500 index is projected to have earnings per share (EPS) of $254.07 for 2025 and $287.36 for 2026. Excluding the Energy sector, which is expected to decline by 13.3%, total earnings for 2025 are predicted to rise by 8.3%. As of July 11th, 21 S&P 500 companies have reported, showing a 1.3% increase in earnings and a 5.8% rise in revenue. Most companies have exceeded EPS and revenue estimates. Netflix shares have jumped 39.7% this year, while Schlumberger faces challenges due to fluctuating oil prices. With almost a fifth of S&P 500 companies reporting this week—including key players from banking, industrials, tech, and services—markets are preparing for data that could either confirm recent optimism or create obstacles for rising valuations. The involvement of Netflix and other major financials amplifies the impact, as these companies often lead index movements. Traders should be aware that, despite their volatility, these earnings reports are crucial.

Deceleration in Earnings Momentum

There is a clear slowdown in earnings momentum for the near future. Growth expectations for the second quarter of next year are just under 5%, marking the weakest outlook since Q3 2023. This decline is not simply a number issue; it reflects the market pricing in changes from tariff policy shifts announced in early April that affected both revenue and profit projections. The market usually reacts quickly to lower guidance, and this time is no different. With 14 of 16 sectors under Zacks experiencing estimate reductions, the trend is widespread. Autos, Energy, and Transportation have been hit hardest. The Energy sector alone is expected to see a 13.3% decrease in earnings. Without Energy, overall earnings growth would be above 8%, nearly double the current reported figure. Many companies that have reported so far are beating expectations. This is not necessarily due to exceptional performance but rather the cushion created by previous downward revisions. This trend often leads management teams to provide optimistic guidance to rebuild investor trust. S&P 500 EPS are projected to be just over $254 next year and close to $287 the following year. If these results do not consistently exceed expectations, equity valuations may start to seem high. It’s not about perfection—just about exceeding lowered expectations. During this earnings season, we can expect quick but temporary shifts in options pricing and direction. Disappointments from a few major companies can affect entire sectors. However, better-than-expected margins or revenue increases can create strong, brief market trends. This situation presents both risks and opportunities. Additionally, there’s a gap in performance between companies like Netflix and Schlumberger. Netflix has seen significant price growth this year, helped by favorable macro conditions and strong internal practices. In contrast, Schlumberger faces challenges linked to energy demand and commodity price changes. The disparity between winners and laggards will continue to create opportunities for trading under the right circumstances. What’s crucial now is monitoring how full-year and 2025 guidance evolves in the coming sessions. With estimates already lowered, we believe there’s potential for positive surprises. This could influence implied volatility metrics as markets adjust to upcoming macro events and central bank updates expected before summer ends. The next few trading sessions will focus not just on surprise metrics but also on volume and price confirmations. Keep an eye on how the market responds to weaker sectors like Autos and struggling Industrials. Increased strength in Financials and Communication Services could emerge as valuation gaps attract capital. The connection between sentiment and actual numbers is tightening. It’s important to watch changes in positioning and open interest, particularly in short-term contracts like calls and straddles, especially those tied to major releases. Adjustments for sector volatility and implied volatility skew will also be crucial this week. Create your live VT Markets account and start trading now.

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