Baseball legend Tommy Lasorda, the former Los Angeles Dodgers manager who won two World Series, didn't have much time for the idea of "pressure" in professional sports.
"When you start to think about pressure, it's because you've started to think about failure," he often said during his five-decade career in the Big Leagues.
Stock markets are different matter, however. The looming second-quarter earnings season -- set against the pullback in big tech stocks, the resurgence of global geopolitical risks, and the specter of renewed inflation -- has investors on edge.
"Earnings season is not a crystal ball, it's a pressure test," said Ruben Dalfovo, investment strategist at Saxo Bank. He notes the next few weeks will distill down to two questions: "Are companies still willing to spend heavily on artificial intelligence and are consumers still spending enough to support profits outside the technology sector?"
Collective S&P 500 earnings are expected to rise more than 24% from last year to just under $700 billion, according to LSEG data. That's modestly slower than the nearly 30% advance recorded over the first three months of the year, but would deliver the best first-half profit performance since 2020.
This week's earnings teaser -- which includes updates from consumer giant PepsiCo on Thursday and the biggest U.S. air carrier, Delta Air Lines, on Friday -- will go some way toward answering the second part of that question. As will next week's slate of big bank updates, including JPMorgan Chase and Goldman Sachs.
The star turn of the season, however, is expected later this month, when Google parent Alphabet and Facebook parent Meta Platforms kick off earnings from the market's biggest companies. Amazon, Microsoft, and Apple with follow soon after, with Nvidia rounding out the season in late August. Collectively, those stocks will help answer Dalfovo's question about AI spending, as the tech sector is expected to contribute nearly two-thirds of the projected headline earnings gain.
The market could use the clarity.
Just a few weeks ago, the market backdrop was benign enough for analysts to pencil in massive profit gains as stocks hit record highs, economic data surprised to the upside, and the job market showed more signs of resilience. That picture has changed notably.
Now, stocks are limping into the start of the reporting season. The market has been rattled by a brutal selloff in tech stocks and the pending collapse of peace talks between Washington and Tehran, which is stoking oil prices and hammering Treasury bonds.
The S&P 500 is now down almost 2% since reaching its all-time peak on June 2, with the tech-focused Nasdaq Composite slipping nearly halfway toward correction territory over the same period.
Tech, which is responsible for the lion's share of both earnings and stock market growth over the past three years, is struggling.
The PHLX Semiconductor index is down 14% since its record peak of late June, with bear-market declines for star performer Micron Technology and government-backed Intel.
South Korea's Kopsi index, home to two of the world's biggest chip makers, slumped into bear market territory on Wednesday, while an index tracking the Magnificent Seven tech giants is down about 7% since its all-time peak in late May.
That's putting even more pressure on corporate America's results to shake stocks out of their recent torpor and power investment sentiment through the second half of the year.
The tech and financial sectors, in fact, are likely to comprise around $456 billion of the near $700 billion in S&P 500 profits expected for the second quarter -- with the latter benefiting from a surge in first-half dealmaking.
The picture for tech is even sharper looking at year-over-year gains: Two stocks, Micron and Nvidia, will contribute a staggering 40% of S&P 500 earnings growth in the second quarter, according to Goldman Sachs' estimates. Meanwhile, the broader AI infrastructure complex will contribute nearly two-thirds of the 22% earnings growth that Goldman predicts for the benchmark.
Tech's earnings dominance, however, sits in sharp contrast to the recent market rotation, where defensive sectors like healthcare, industrials, and utilities -- alongside financials -- have outpaced broader indexes over the past month.
Healthcare stocks have gained 6.6% in the last month, but analysts expect the sector's second-quarter earnings to shrink by around 9%. The 4% gain for industrial stocks over the past month, meanwhile, sits next to a modest 10% profit growth forecast.
Those sectors will need to see outsize earnings growth, including an expansion of profit margins, to hold the gains they have captured over the past month.
Profit margins, in fact, will be a key point of focus for the second-quarter reporting season. That's because while earnings growth is likely to approach 30% if companies top forecasts at their historic rate, revenue gains are only likely to reach only 12%.
"If earnings are going to hit consensus estimates in Q2 and the second half, margins will have to expand quite a bit -- enough to convert low-teens revenue growth into at least double that pace of earnings growth," said Jeff Buchbinder, chief equity strategist at LPL Financial.
He sees improving figures over the back half of the year, however, tied to lower tariffs and AI productivity gains, but worries that things like higher memory chip and energy prices will erode some of that improvement.
Interestingly, Wall Street's view on small-cap earnings is even more robust. The benchmark Small Cap 600 Index returned more than 22% over the first half of the year, nearly all over the three months ending in June, outpacing both the S&P 500 and the Nasdaq.
Earnings growth for the Russell 2000 small cap index is expected to outpace that of the broader Russell 1000 large-cap tracker for both this year and next, with a stunning 54% growth rate penciled in for 2026.
But ultimately, broader stock performance is still deeply reliant on big tech. If Wall Street's near-term targets for the S&P 500 are to come good, the tech giants will need to blast earnings expectations over the coming weeks.
"Markets like a good story, and earnings season asks for the invoice," said Saxo Bank's Dalfovo.
"If both AI budgets and consumers hold up, the rally gains firmer ground, " he added. "If only one side delivers, investors may learn that one engine can pull a market forward, but it works harder when the other starts to cough."
Write to Martin Baccardax at martin.baccardax@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
July 09, 2026 02:00 ET (06:00 GMT)
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