earnings season began last week with 12 sp 500 companies reporting banks and financial companies were a big part of the mix better news on consumer inflation cpi boosted stocks while lowering yields and expectations for federal reserve rate hikes the sp 500 soared by over 24 for the week and the 10year treasury yield fell from almost 41 to 38 the pace and the breadth of the secondquarter earnings season accelerate this week with 60 sp 500 companies scheduled to report a more detailed preview of the earnings season is available here at this early point in the reporting season blended earnings which combine actual with estimates of companies yet to report are slightly worse than forecasts at the end of the quarter the consumer discretionary sector is expected to post the highest yearoveryear growth rate at 278 this increase is primarily due to amazoncom amzn which had a loss in the second quarter of 2022 but is expected to report a profit for the same period this year since amazon is over 20 of the total market capitalization of the sector its results have an outsized influence on the industry sales growth is closely tied to nominal gdp growth combining afterinflation economic growth real gdp with inflation with nominal gdp growth decelerating yearoveryear for the second quarter topline revenue growth for companies will be more challenging so far with a few companies reporting sales growth has been consistent with expectations going into the earnings season with the over 30 yearoveryear decrease in the average oil price for the quarter yearoveryear revenues for the energy industry are expected to plunge similarly with the sharp contraction in sales energy companies are expected to have the most sizable yearoveryear decline in earnings this quarter despite the forecasted plunge in profits for the quarter the most famous investor in the world warren buffett remains positive on the sector as regulatory filings showed that berkshire hathaway brka brkb bought more occidental petroleum oxy shares in june and now owns more than 25 of the company a previous piece discussed why berkshire hathaway favors occidental petroleum so far the blended earnings performance has slightly underperformed expectations at the end of the quarter combining actual results with consensus estimates for companies yet to report the blended earnings growth rate for the quarter is at 71 yearoveryear behind the expectation of 68 at the end of the quarter bank and financial earnings dominated the first week of the earnings season headline earnings from the banks were uniformly better than expected jpmorgan chase jpm citigroup c state street stt and wells fargo wfc beat earnings estimates the big banks posted betterthanexpected net interest income as they earned more on lending versus what was paid to depositors more banks and financials report this week including goldman sachs gs schwab schw bank of america bac us bancorp usb discover financial services dfs american express axp comerica cma and several regional banks the smaller banks’ including some of the regional banks’ earnings and outlooks will be of interest because the data seems to indicate a divergence in operating performance between the large and smaller banks after the collapse of silicon valley bank sivbq for example wells fargo significantly increased its loan loss reserve for commercial real estate cre and smaller banks make more cre loans than the largest banks despite the betterthanexpected earnings reports large bank stocks underperformed the sp 500 for the week with the regulatory commercial real estate and economic risks continuing to hang over the group for more about the us banking system including the valuation of the stocks a recent update is here outside of earnings season stocks were boosted by the moderation in the consumer inflation data the june headline cpi reading declined to 30 yearoveryear rate from 40 in may and well below the high of 91 in june 2022 the better headline inflation reading also had supportive underlying details with core inflation adjusted for some slowmoving government data looking very tame the atlanta fed’s sticky inflation measurement declined to 58 yearoveryear from 61 the robust labor market remains the primary risk to the timeliness of headline inflation returning to near the 2 target rate and the upside risk to the number of federal reserve hikes currently priced into the market wage gains are keeping services inflation elevated at 62 yearoveryear the federal reserve won’t consider the inflation fight won with elevated wage increases so job data will be the primary focus for market participants consensus expects the last fed rate hike of 25 basis points 025 on july 26 and the first rate cut coming as soon as yearend while the betterthanexpected large bank earnings were positive the friendly inflation readings primarily boosted markets last week the tamer cpi reading makes the shortterm recession risk very low and raises the odds of the federal reserve pulling off a soft landing the last remaining piece to the federal reserve ending its rate increases for this cycle will be moderation in wage gains so the state of the labor market will be under a microscope this week a more diverse group of companies beyond the banks reports earnings so it will be instructive to see if the earnings performance continues its relative improvement actual results should outpace the dour estimates at the beginning of the earnings season in addition the smaller banks’ earnings will be of particular interest as their fortunes may diverge from the big banks given their outsized exposure to commercial real estate