Yahoo Finance

What do you see being the key drivers to the market here in the second half of the year?

Well, I think what everyone is focused on right now is the labor situation, and we know we've seen some deterioration. The concern is that as that perpetuates, it begins to feed on itself to the downside, okay? So we're watching the labor situation, and that's probably a primary focus for the Fed at this point. But you know, what we're looking at from a macro perspective is a pretty interesting balance. You're seeing many economic indicators show signs of bottoming around historic levels. At the same time, you're seeing some deterioration in other components. So from our perspective, it's a fairly mixed macro bag, but I'd say that would put your your downside attention would mostly be on labor and the ramifications that might have for underlying S&P 500 corporate fundamentals.

So, with that in mind, I mean, as we're thinking about fundamentals, what type of earnings growth then in the back half of this year are you anticipating?

Well, so we've been of this view that you're going to get a broadening in terms of earnings contribution. So, back to the starting point of the discussion, we're still looking at this Meg 7 cohort positioned to post 20% plus earnings growth in 2025. That's pretty hefty, and that's a really strong starting point for assessing broader index. The rest of the S&P 500, that other 493, is fascinating. It posted 5% earnings growth during the Q2 reporting period. That's the first quarter in six you've actually gotten a positive earnings growth rate out of that cohort. So this broadening effect is happening, it's just a question of how quickly and to what extent it can extend into '25, the market's willing to price in. What we're arguing is that all told, the setup continues to be for earnings resilience, and we're going to define that by sort of a high single-digit rate of earnings growth in this year, with follow through for another high single-digit rate of earnings growth uh for 2025.

So Scott, when we talk about how earnings are shaping up for the back half of this year and into 2025, some of the recent numbers from FactSet caught our attention here at Yahoo Finance because they have been, at least expectations here for the current quarter, slashed by 2.8%. That has caused some worry on Wall Street, just given what you were just saying. Is that something that maybe investors should overlook and isn't as big of a headwind as maybe some are seeing it or viewing it right now?

That's a really good point. So we're of the view that, well, with Q2, we got what will be considered a beat and hold. So you had a Q2 beat to numbers. Back half of the of the year expectations did come in a couple of percent as you pointed to, Shana. We think that probably replicates into the third quarter and then the fourth quarter, but keep in mind the further we get towards the end of the year, the more investors are going to start fast forwarding to the '25 outlooks. And and there, even though you get a, let's call it a more measured uh response to Q3 results, let's say, the setup should still be for an improving dynamic going into uh 2025. Now, that's that's taking into account some signs of current economic weakening or softening, but it also begins to set us up for uh the expected benefits of a of a lower Fed funds trajectory as you go into 2025. So yes, we're focused on Q3 earnings where I think consensus right now is for a flattish quarter. We expect a more normal positive beat on that, but the focus is going to be on where '25 numbers are taking us. And again, what I want to emphasize here is, even though we're sort of to a certain degree downplaying the influence of that Meg 7 mega cap growth cohort, it's still set up for very solid earnings growth as we go through 2025, almost irrespective of what's happening with the broader market action.

Scott Chronert, who's the Citigroup head of US equity strategy, Scott, thanks so much for kicking off today's trading session with us.

Have a good day.

You too.