BlackRock: "A cautiously optimistic outlook for U.S. earnings"

From the BlackRock blog:

We're optimistic U.S. earnings will improve in the second half, but we believe the rebound may not be as big as many expect. Here's why. 

The U.S. profits recession probably didn’t end last quarter, with S&P 500 earnings likely to post a fourth consecutive quarterly decline. We see company earnings improving in the second half, but the rebound may be smaller than many expect. This week’s chart helps explain why.

A second-half U.S. earnings recovery will be underpinned by three key factors, we believe: a slowdown in the U.S. dollar’s rise, stabilizing energy prices and solid consumption growth driven by rising wages. Yet a slowdown in capital expenditures (capex) may offset these positives. The amount companies plan to spend on capex in the coming 12 months has dropped to the lowest level since 2010, as the chart above shows.

The energy sector has driven much of the recent capex weakness, and capex is a less important barometer of sentiment in service sectors and asset-lite businesses. But we believe many companies may be reluctant to invest in an uncertain political climate marked by an impending Brexit and the upcoming U.S. presidential election. As second-quarter earnings season moves into full swing, we will be paying close attention to any signs of reduced investment appetite in corporate guidance....MORE

Richard Turnill is BlackRock’s global chief investment strategist. He is a regular contributor to The Blog.Kate Moore, BlackRock’s chief equity strategist, contributed to this post.