Report cards are due on Wall Street — and it’s time to see if US companies will rise to the occasion or give the doomers fuel for their downturn forecasts. Analysts have forecasted a robust 8.8% year-on-year earnings growth for S&P 500 firms in the second quarter, the highest anticipated increase since early 2022, according to FactSet. Big banks like JPMorgan ChaseJPM

and Citigroup ($C) will kick us off on Jul. 12 — with Big Tech companies like MicrosoftMSFT

and AlphabetGOOG

reporting on Jul. 23. But why does this earnings season matter?

• Those hefty 17% gains in the S&P 500 this year are riding on companies beating expectations — especially the largest 10 companies in the S&P 500, which make up a record 37% of the index’s market cap.
• Analysts expect the communication services and healthcare sectors to report an 18% and 17% increase, respectively, while the materials sector is forecasted to experience a 10% decline (WSJ).

Buckle up: Charles Schwab’s Liz Ann Sonders believes earnings will need to “catch up to where valuations are” to justify current valuations, which are sitting above the 5-year and 10-year averages of 19.3x and 17.9x. Banrion’s Victoria Bills warns, “You’ll see a correction in stock prices if they’re not able to beat out their earnings projections.” So investors, hang on — it’s going to be an interesting next few weeks.