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Third-Quarter Earnings Unlikely to Meet Expectations

Markets

As we head into 3Q earnings season, the question isn’t whether earnings will be good, it’s whether earnings will be good enough. Standout earnings from the previous quarter (+25% year-over-year) have heightened expectations, as investors are now accustomed to the impact of the tax cuts on both sales (healthy business and consumer spending) as well as profit margins. The S&P 500 rose more than 7% in the third-quarter alone.

While 3Q earnings overall are still likely to show healthy 20%+ gains over the previous year, there are few things to watch for: 1) tight jobs market pushing wages higher and eating into profits; 2) impact of the rising U.S. dollar on firms that have a large percentage of overseas sales (which will be reduced when translated to dollars); and 3) early impacts of the tariffs on results and overall business sentiment.

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