US earnings – what to look out for?

The US earnings season is upon us once more. This is the time of year when the giants of the American stock market publish reports on earnings figures for the second quarter of the year.

These reports also include guidance for coming quarters – in other words, what they expect from the road ahead.

Since this region is such a popular hunting ground for investors, this is an important time to get a clear picture of how some of the key companies are faring and to help investors gauge where they might like to invest next.

Popular on Smart Investor

At Smart Investor, among the most popular US shares chosen by our customers are Nvidia, Microsoft, Tesla, Amazon, Apple, Alphabet and Meta – otherwise known as the ‘Magnificent 7’.

Of course, this doesn’t mean that you should automatically invest in these stocks just because they’re currently popular, but it’s a sign of how heavily concentrated tech companies are within US stock markets.

In addition to direct stocks, our investors also like to choose funds to give them exposure to the US. Passive funds which track the S&P 500 – one of the US’s main stock market indexes, are popular.

For users of the Smart Investor app, data showed that since the launch of our new Find Investment search functionality,¹ ‘S&P 500’ (the US’s largest market index) is one of the most typed search terms on the App.

Keep an eye on mega-cap US tech companies

Technology giant Microsoft was in the spotlight recently after the global shutdown of IT systems. The problems, caused by an update to Microsoft systems from cybersecurity software firm CrowdStrike, meant that flights, trains, banks, GP appointments systems and payments to retailers were all thrown into chaos. However, it’s share price suffered a temporary dip on the day. Its earnings report is due on Tuesday 30th July.

Always remember that past performance is never a guarantee of future performance. And small, isolated snapshots of performance need to be viewed in exactly that light.

Alphabet has already reported huge profits. It reported $84.7billion in revenue, up 14% from the same period last year, which its chief financial officer, Ruth Porat, attributed to growth in Search and Cloud services.

Tesla, however, highlighted a 45% drop in profits as a result of sluggish sales. it earned $1.5 billion in the second quarter of the year on revenue of $25.5 billion. In the second quarter of 2023, Tesla made $2.7 billion and had revenue of $24.9 billion. This was perhaps expected after it was recently revealed that Tesla’s share of US electric vehicle sales slid below 50% for the first time as the world’s largest EV maker faced increased competition in its domestic market, but is the plan for Tesla to be more than just a carmaker?

However, the market showed disappointment in both sets of results, with the S&P 500 falling 2.3% on the same day – its worst day since December 2022.

This episode should serve as strong reminder that diversification is important in terms of sectors and regions, for investors who might feel that these big stocks can do no wrong.

Meta, Amazon and Apple are due to report later this week, with Nvidia at the end of August.

US Banking sector’s mixed results

The banking sector, including JPMorgan Chase and Citigroup, reported earlier in the month to kick off earnings season.

JP Morgan, America’s largest bank, unveiled a profit of $18.2 billion in the three months to the end of June, up 25% on a year earlier. Citigroup also reported a profit of $3.2billion, up from $2.9 billion a year earlier.

However, broadly across the sector, results were mixed, with some generally positive surprises around M&A and trading activity, and some disappointments around lending margins in particular. Although there was no major red flag, these results appeared underwhelming considering the US banking sector’s 20% rally so far this year.

If you decide to buy direct shares, you can use our international share trading service and own a slice of the companies you want to back.

Remember, before you can trade International and US shares on Smart Investor, you will need to complete the W-8Ben form by logging in via online banking and going to ‘Investment Settings’.

Our view

With Smart Investor customers interested in the US, Will Hobbs, Head of Multi-Asset Wealth at Barclays UK Wealth Management and one of the key people behind our Ready-made Investment funds, explains what investors should keep an eye on, during the earnings season.

He explained: “As investors, one of the things we want to see is talk turning into broader action on investment. The market will have ever less tolerance for ‘AI washing’ in the absence of more substance on generative AI’s potential.

“Earnings estimates haven't displayed the typical downward pattern into this reporting season, which perhaps raises the bar for positive surprises. This is especially the case in the context of softer data on the underlying economy in the quarter.”

The US election continues to create some uncertainty for investors. Will Hobbs added: “There’s way more going on in the economy than just the election. It’s far too big for the incoming President to be the sole focus.”

Interested in the US?

While much focus is on the ‘magnificent seven’ stocks of Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla, they are not the only ways you can get exposure to the wider US market.

If stocks aren’t for you, then there are many other ways to invest in this region.

US Tracker Funds

You can choose a US focused tracker fund which aims to replicate the performance of a US stock market index such as the S&P 500. Our US Tracker Funds section of our funds list gives you the cheapest available fund we offer to get exposure to the US market.

Active US funds

There are also active funds you may want to consider, including the JPM US Equity Income fund and Loomis Sayles US Equity Leaders fund. Both are currently on the Barclays Funds List, which is made up of funds that our in-house experts believe are key for building a diversified portfolio.

The JPM US Equity Income fund invests in the shares of US companies, with the aim of delivering an income to investors of 1% higher than that of the S&P 500 Index. It’s not all about generating an income though – the fund also seeks to generate long-term capital growth.

The Loomis Sayles US Equity Leaders fund also invests in shares of US companies. It specifically aims to find provide products or services which are difficult to replicate, which means competitors tend to find it difficult to enter these markets and compete. It also tends to invest in founder-led companies as they believe that their leaders are motivated to think about the long term. Examples of these are Amazon (which the fund has invested in since 2006) and Meta which is the largest holding in the fund.

You could also consider global fund which typically contains US companies. One example – from the Barclays Funds List – is the Polar Capital Global Technology fund specialises in technology stocks and at the time of writing held investments in the ‘Magnificent 7’.

Not enough time to choose?

If you’re thinking that getting exposure to the US market sounds too time-consuming or you don’t know what to choose there’s another way to invest.

Barclays Ready-made Investments funds are designed by our experts to give you a well-diversified global portfolio which will include exposure to the US market. In a nutshell, you choose what risk you feel comfortable with and our experts do the rest.

There’s a simple choice of five funds, all of which invest in a mix of shares, bonds and cash.