With companies making up about 75 percent of the Standard & Poor's 500 Index's market value scheduled to report results over the next three weeks, here's what Wall Street strategists are paying special attention to.
Analysts estimated profit for the entire index dropped 6.4 percent in the second quarter, the worst decline since 2009, according to data compiled by Bloomberg. Sales probably fell 4.3 percent.
1. Consumer Spending/Sales
While bulls thought lower oil prices would boost consumer spending at the start of the year, first-quarter earnings calls and stagnant gross domestic product suggested otherwise, according to Goldman Sachs Group Inc. ``We expect this trend will be reversed in 2Q,'' strategists led by David Kostin wrote in a July 10 note. ``Management commentary from consumer finance companies may offer insight as to whether or not consumers have finally embraced the idea of spending their gas savings.''
Goldman will focus on companies that derive almost all of their revenue domestically, such as Chipotle Mexican Grill Inc. and Southwest Airlines Co., for clues of how U.S. growth is evolving. ``Accelerating growth will likely be a pervasive theme,'' they wrote.
``The equity market meltdown in China and ongoing Greek crisis in Europe now appear strong enough to suggest the second half of 2015 could take on a considerably different tone,'' Gina Martin Adams, an equity strategist at Wells Fargo Securities LLC, wrote in a July 9 note.
Adams recommended investors raise holdings in non-essential consumer stocks while cutting stakes in industrial and materials producers to position for ``a domestic resurgence'' in the second half.
The strength of the U.S. currency will be a big theme during earnings season, according to Jonathan Glionna, chief U.S. equity strategist at Barclays Plc. The 12 percent increase in the dollar from a year earlier is likely to lead to a decline of 3 to 4 percent in sales for the S&P 500, he said.
``Recall that currency moves matter more than they used to for the S&P 500 because a greater portion of sales now occur overseas,'' Glionna wrote in a July 1 note. ``The translation adjustment required in 2Q15 could be the largest ever.''
Among 10 S&P 500 industry groups, computer and software companies rely the most on international sales, with more than half of revenue coming out of the U.S., data compiled by S&P Dow Jones Indices show.
4. Beat Ratio/Margin
For five years, U.S. companies have dodged the ignominy of falling profits, often by beating analysts' estimates by just enough to push earnings higher than they were the previous year.
Tobias Levkovich, Citigroup Inc.'s chief U.S. equity strategist, expects it to happen again in the second quarter, calling for a 2 percent increase in profit.
``The bulk of S&P 500 earnings are domestically derived and news flow around American economic developments is most critical and supportive recently,'' he wrote in a July 2 note.
Dubravko Lakos-Bujas, head of U.S. equity and quantitative strategy at JPMorgan Chase & Co., says surprises will come from continued margin expansion through cost cutting and lower input costs.
``Given our view that structural tailwind for margin expansion remains intact with operating leverage still not fully exhausted, this is likely to be a source of earnings surprise,'' Lakos-Bujas wrote in a note dated July 9. ``The largest driver of margin expansion is expected with a reduction in cost of goods per unit of sales due to declining raw material prices and rising utilization.''
More than $2 trillion of share buybacks have offset withdrawals of retail investors and helped sustain the six-year equity rally. The percentage of buybacks announced during earnings season has increased to 30 percent in 2015, up from about 25 percent in the previous five years, data compiled by Barclays show.
``We expect buyback announcements to remain a prominent theme during 2Q15 earnings,'' Glionna wrote. ``We will be looking for guidance on the pace of share repurchases during conference calls. This could allow us to refine our estimate of $592 billion of completed buybacks for the S&P 500 in 2015.''