How 401(k) investors can profit from strong earnings season on Wall Street

Trade wars and tariff talk are a drag on 401(k) plans, as all the grim headlines drown out good news and cap gains in the stock market. But the bad vibes from politics and trade-related trauma could soon give way to upbeat news about the profitability of American companies, breathing fresh life into equities.

The second-quarter earnings-reporting season kicks of Friday when big banks, such as JPMorgan Chase and Wells Fargo, report results in what is expected to be the second straight quarter in which companies in the Standard & Poor’s 500 stock index grow profits at a 20%-plus pace, according to earnings-tracker Thomson Reuters.

Retirement investors familiar with media reports of companies’ earnings “beats” — code word for quarterly profit results that come in better than analysts’ expectations — should be rooting for Corporate America to perform well.  

“Earnings season is ‘Report Card’ time,” says JP Gravitt, chief market strategist and CEO at Market Realist.

If most companies ace the profit test and their CEOs downplay the potential fallout from rising trade tensions, 401(k)s that have been languishing could get a boost as stocks move higher on the upbeat earnings news.   

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That’s why Wall Street will be listening closely to top corporate executives to see just how much of a threat a full-fledged trade war between the U.S. and its trading partners will have on business results. 

“Is it just a potential threat or does it actually affect their results?” is what investors will want to know, says Gravitt.

The industry group on track to post the strongest results is energy, which is forecast to deliver profit growth of 141.5 percent compared to last year’s second quarter, thanks in part to the price of a barrel of U.S. crude rising from around $60 per barrel at the start of the year to $70 now. The technology sector is forecast to grow earnings 25.5 percent and financial companies 22 percent, to name a few of the expected top performers.

“With every other headline these days mentioning tarirffs and trade wars across the globe, earnings season just might be the welcomed reprieve the market needs to confirm how resilient the U.S. economy is,” Jason Trennert, founder of Strategas Research Partners, noted in a report.

 

 

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