Investors brace for onslaught of profit reports

Wall Street is bracing for an avalanche of incoming second-quarter profit reports this week, with roughly 200, or 40%, of the companies in the Standard & Poor’s 500 stock index reporting results.

The wide swath of U.S. companies reporting results this week range from tech and retail leaders Apple, Alphabet and Amazon to Dow Jones industrial average components Caterpillar, McDonald’s, Boeing, Coca-Cola and Exxon-Mobil, according to earnings-tracker Thomson Reuters.

This week marks the busiest week of earnings releases. The second-quarter earnings season has gotten off to a better-than-expected start, with 68% of the 125 companies that have reported results topping lowered forecasts, above the long-term average of 63% since 1994, according to Thomson Reuters. Currently, earnings for the S&P 500 in the April-through-June quarter were seen contracting 3%.

Wall Street will be watching to see if Corporate America can improve profitability in a world in which developed economies around the globe are in slow-growth mode and the U.S. economy is still delivering sub-3% growth. (Investors will get their first look at second-quarter U.S. economic growth on Friday. GDP rose just 1.1% in the first quarter of 2016.)

Investors will also be listening closely to commentary from CEOs as to whether Britain’s vote on June 23 to exit the European Union is hurting business and profit and, if so, to what extent.

Stocks, which hit fresh records this past week and closed out trading Friday with gains, would welcome a rebound in profits after a year-long profits recession. Given that the S&P 500 is trading at 17.1 times its forward four-quarter earnings -- above the 14.7 longer-term average -- earnings must pick up to justify the broad market index's lofty valuation.