US income recession looks set to get worse

Q2 corporate reporting season begins this week, and there are already some pretty gloomy forecasts being made as earnings are expected to decline, according to Yahoo.

This decline in earnings will continue for the third quarter in a row; and for the S&P 500 index, it will be about 7% compared to the same quarter last year, and the sharpest decline since 2020.

The only exception in terms of growth out of all 11 sectors will be consumer discretionary and communications services, which are expected to show strong quarterly growth. But S&P 500 companies will see no year-on-year revenue growth for the first time in 10 quarters.

A Goldman Sachs (NYSE:GS) strategist sees S&P 500 earnings declining due to declining commodity prices and falling inflation, which could limit firms' pricing power.

Market attention last quarter was focused on AI-related stocks, and this quarter investors will have to test whether companies' promises to monetize these technologies will come true, and if so, when this can be expected. The state of consumers and the financial system after the banking crisis will also be key topics.

Although, in general, Wall Street expects a "low bar", that is, the beginning of a decline in profits at initially rather low estimates. This view is shared by Goldman Sachs and UBS.