The bar is high for S&P 500 earnings, but these as-yet unrewarded sectors are where real surprises could be hiding

By Barbara Kollmeyer

HSBC wants you to look at World Cup beneficiaries and the automotive sector

Argentina supporters queue to order at a Kansas City barbecue restaurant. The ongoing World Cup, co-hosted by the U.S. with Canada and Mexico, may have lifted earnings for some companies, says HSBC.

Second-quarter earnings for S&P 500 companies will begin rolling out next week, and the bar has been set high, with the strongest results since the pandemic anticipated.

Consensus forecasts are calling for 22% earnings-per-share growth in the quarter, which is a postpandemic high, a team led by Nicole Inui, head of equity strategy for the Americas, told clients in a note on Thursday. "And in an atypical move, earnings expectations increased ahead of the quarter, setting a higher bar for EPS beats."

However, HSBC strategists say they aren't worried about such lofty expectations as the majority of the earnings-per-share growth will come from sectors such as energy, semiconductors and tech hardware, where "earnings visibility is high."

HSBC observed that the market beyond these sectors looks less exciting, with the rest of U.S. companies looking at 5% EPS growth for the quarter, below the prior quarter's annual growth rate of around 24%.

What that looks like is double- and triple-digit earnings growth for the energy and information-technology sectors but "notable" deceleration for financials and industrials, from 20%-plus in the first quarter to a high-single-digit percentage, they said.

Some of Wall Street's biggest banks, such as JPMorgan (JPM), Goldman Sachs (GS) and Bank of America (BAC), report their results next Tuesday.

The "Magnificent Seven" stocks, which have contributed to earnings growth in the consumer-discretionary and communication-services sectors, are expected to report lower but still strong growth of around 30%. Expectations for earnings before interest and taxation growth of 34% "should continue to support the AI capex narrative," according to Inui and her team. Healthcare is the only sector the HSBC strategists foresee reporting a decline.

Still, the strategists are suggesting that investors remain on watch for surprises, and they offer a few ideas, such as in the automotive sector, which booked tariff refunds in the first quarter, while the consumer and beverage spaces could see a boost from World Cup-related travel and spending.

HSBC has provided a screen of S&P 500 companies whose earnings estimates have been revised higher but whose valuations seem discounted as stock prices have fallen. LyondellBasell Industries (LYB), Chevron (CVX), Palantir (PLTR) and Netflix (NFLX) are among those names.

The HSBC strategists offered this chart showing the sectors they say have not been rewarded for improved earnings, such as software, energy and communications, and professional services:

JPMorgan strategists recently pointed out "unprecedented" year-to-date upgrades to S&P 500 consensus profit estimates for 2026 and 2027. They expressed regret at not having been more optimistic, lifting their S&P 500 year-end target to 7,800.

-Barbara Kollmeyer

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07-10-26 0826ET