Potentially blockbuster earnings could turbocharge the stock market.
Another quarter of stellar earnings could juice an already primed stock market, pushing key indexes to new records in coming weeks.
Wall Street analysts are forecasting earnings to grow near double digits as corporations beat expectations, putting second-quarter results on pace to be among the best since fourth-quarter 2011.
John Butters, senior analyst at FactSet, projected earnings per share to rise 6.5% in the April-June quarter but noted that actual increase could top 9% given that growth rates tend to adjust about 2.9 percentage points higher as more companies announce quarterly performance data.
Of the handful of S&P 500 index SPX, +0.47% companies that have reported so far, 80% have beat mean EPS estimate while 83% have exceeded mean sales target, he said.
Karyn Cavanaugh, senior market strategist at Voya Financial, who predicted earnings growth of 6% to 7%, was likewise upbeat.
“The canary in the coal mine is earnings and the canary is singing a very sweet song right now,” said Cavanaugh.
Read: Four key sectors to watch closely this earnings season
Brian Belski, chief investment strategist at BMO Capital Markets, forecast second-quarter earnings to rise 7%, paling in comparison to the “almost perfect” first-quarter gain of 13.2%. However, he still believes analysts are being overly cautious in their outlook given the soft dollar—which makes U.S. products price competitive overseas—and a stronger global economy.
“We believe analysts continue to underestimate the effect of these conditions on earnings power. Therefore, we would not be surprised if overall surprise (no pun intended) comes close to matching the strength exhibited during first quarter 2017. If that winds up being the case, we are looking at another quarter of double-digit earnings growth,” said Belski in a report.
As the following chart by LPL Financial shows, strategists expect technology, energy and financial companies to underpin a strong quarter for earnings. Cavanaugh also believes that consumer discretionary—a sector that many investors may have written off on tepid retail and consumer sentiment data—could also post better-than-expected results.
Apart from the corporate sector, the economic environment remains generally ideal for stocks without apparent signs of an immediate recession or overheating, what many economists would deem a “Goldilocks” economy.
The only possible headwind for equities at this time is political uncertainty as President Donald Trump struggles to introduce meaningful policy change amid mounting challenges, including a probe into whether his campaign actively colluded with Russia to interfere in the U.S. election.
See: The stock market may not be able to defy gravity for much longer
“It’s a bit frustrating. The market takes two steps forward and then one step back. But we are moving in the right direction,” said Cavanaugh.
Next week, 68 S&P 500 companies and nine Dow Jones Industrial Average DJIA, +0.39% components are scheduled to report results, according to FactSet’s Butters.
Among notable earnings to watch are Bank of America Corp. BAC, -1.67% Johnson & Johnson JNJ, +0.56% Goldman Sachs Group Inc. GS, -0.78% International Business Machines Corp. IBM, +0.40% Morgan Stanley MS, -0.70% Visa Inc. V, +1.03% Qualcomm Inc. QCOM, +1.03% Microsoft Corp. MSFT, +1.41% eBay Inc. EBAY, +1.59% and General Electric Co. GE, -0.04%
Stocks rose on Friday with the S&P 500 and the Dow closing at records while the Nasdaq COMP, +0.61% finished within 10 points of its all-time high close.