The markets have been obsessed with the Fed this week.  Let’s talk about something else.  How about earnings?

Second quarter earnings will kick into gear on Monday, starting with the big banks. And we are doing so with stocks on record highs, with the expectations of a rate cut coming down the pike for month end.

We’ll hear from Citi on Monday.  JP Morgan and Wells Fargo report on Tuesday.

Remember, S&P 500 earnings grew by better than 20% in 2018, thanks to a corporate tax cut and the hottest economy of the past decade.

Then we had a sharp decline in stocks.  That’s a shock to confidence.  When confidence takes a hit, the expectations bar gets lowered.  Before stocks unraveled in December, Wall Street was looking for 8.3% earnings growth for full year 2019.  Now they are looking for just 2.6% growth for the year.

As I’ve said, never underestimate the appetite of Wall Street and corporate America to dial down expectations when given the opportunity.  That sets the table for positive surprises.  And positive surprises are fuel for stocks.   Stocks are fuel for confidence.  Confidence is fuel for the economy.

We saw it in Q1.  The bar was low, and expectations were beat – both on earnings and economic growth. The stock market had the best first quarter in 20 years and Reuters called it the best first half for global financial markets ever.

As for Q2 earnings:  The consensus view is for S&P 500 earnings to contract by 2.6%.