The 5 questions investors are asking this Q2 earnings season

Q2 earnings season officially kicks off in the U.S. this week with a slew of publicly-listed companies lining up to open their books to the public. 

Over the course of July and August, we’ll see some of the biggest companies in the world lift the lid on their businesses and, by extension, the economy.

Here are the five big questions investors will be looking to answer with Q2 earnings.

1. Are Americans still spending?

As the United States stares down the barrel of a recession, all eyes will be on one of its biggest economic drivers: consumer spending. 

Making up around 60% of GDP, America’s economy is closely tied to the fortunes of Americans – and their willingness to splash cash.

As consumer confidence starts to dip, hitting a 16-month low in June, investors want to know whether or not financial uncertainty has forced households to tighten their belts.

Key Q2 earnings results: JP Morgan Chase and Morgan Stanley (14 July), Wells Fargo, State Street & Citigroup (15 July), Charles Schwab & Bank of America (18 July), Domino’s Pizza (21 July), American Express (22 July), McDonald’s & Coca-Cola (23 July), Ferrari (2 August), Yum! Brands (3 August), Papa John’s & Block (4 August).

2. Is the travel recovery intact?

For as long as there have been closed borders there has been hope that one day things would go back to how they were. As your friends live it up and photos of the European summer takeover Instagram, it would seem like normalcy has crept back. 

But the road back hasn’t been easy. There have now been more U.S. flights cancelled in 2022 so far than throughout all of 2021. Enduring restrictions, new COVID variants, and rolling lockdowns in countries like China have only dampened the recovery further.

While travel might be officially back on the agenda, many investors are wondering whether the sector has further to bounce or whether there is more pain in store?

Key Q2 earnings results: Delta Air Lines (13 July) United Airlines (20 July), Hilton Hotels (27 July).

3. Can growth companies pick themselves back up?

Headed into July, analysts expect earnings to grow at around 4.1%. While that might not seem so bad on the face of it, the figure equates to the slowest growth rate since late 2020. In fact, it’s less than half the growth recorded in the first three months of this very year.

After a rapid expansion on the back of pandemic stimulus, the world’s largest economy appears to be running out of steam. Certainly, there’s been a major compression in company valuations, particularly in the tech sector.

Investors will be eager to see growing revenues and positive forward guidance. After the sharp selloff earlier this year, they’ll also be looking to see whether there are some buying opportunities.

Key Q2 earnings results: Netflix (19 July), Tesla (20 July), Snap (21 July), Spotify & Meta (27 July), Apple (28 July), Virgin Galactic & Block (4 August).

4. Who can handle rising costs?

There’s one word on everybody’s lips right now and it starts with an ‘i’.

Inflation is at multi-decade high in the United States which has helped trigger a sharp rise in interest rates from central banks. As costs rapidly rise, some investors have started to look for companies that can absorb them. 

The change of mind is seeing some more interest being paid to more defensive sectors such as consumer staples and healthcare. Whether the big names in those industries can beat rising costs however, remains a key focus of this earnings season.

Key Q2 earnings results: UnitedHealth Group (15 July), Johnson & Johnson (19 July), AT&T (21 July), Verizon (22 July), Chipotle, General Electric & United Parcel Service (26 July), Kraft Heinz (27 July), Vale & Merck and Co. (28 July)

5. Can companies overcome supply disruptions?

Demand for goods like electric vehicles might be at all time highs but that’s not much use if automakers can’t produce enough cars.

While the auto industry is the most obvious example of the phenomenon, supply issues have gripped a number of different sectors and created unique challenges for companies looking to recover from the pandemic.  

Semiconductors, used for everything from power windows to iPhones, is another key example of a shortage that is yet to be solved.

Investors will be looking for more detail on how these issues are being tackled and whether or not progress is being made.

Key Q2 earnings results: Taiwan Semiconductor Mfg (14 July), ASML (20 July), Qualcomm & Ford (27 July) Stellantis (28 July).