The S&P 500 has been flying high, registering yet another record high on Monday. This blue-chip index has already gained over 2% so far this month, while bringing its year-to-date advance to 16.7%.

At the time of writing, futures are holding steady around those lofty peaks, as investors and traders worldwide await the start of the Q2 earnings season.

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From a technical perspective, the S&P 500 minis appear to have slightly more upside before breaking into overbought territory, either by way of its prices breaking the upper Bollinger band, or its 14-day relative strength index going past the 70 mark.

Still, with momentum pointing north, and the uptrend firmly intact, there appears to be more gains to be had for this index which tracks the performance of the 500 largest publicly traded companies in the US.

What is earnings season and why the fuss?

Earnings season is when these publicly-traded companies reveal how they’ve each fared in the most recent quarter. This will help investors determine whether the stock price is justified by the company’s performance (i.e. great past performances or future prospects should warrant higher share prices, and vice versa).

Conversely, should any of these listed companies disappoint markets with either a lackluster showing during the previous quarter or with a deflated outlook, that typically triggers some selling of the stock as investors hunt for other stocks which could offer better chances for near-term gains.

What are markets expecting for this imminent earnings season?

US stock markets have been buoyed about the prospects of entering another stellar earnings season, which kicks off Tuesday. After all, according to FactSet:

• Companies listed on the S&P 500 are set to announce an earnings growth of 69% year-on-year for Q2 – that would be the highest earnings growth rate since the final quarter of 2009!
• A record high number of companies have offered positive EPS and revenue guidance for Q2.

Of course, it remains to be seen whether such optimism actually becomes reality, but given how earnings tend to overshoot expectations, this could translate into more upside for US stocks over the course of the next few weeks.

Which stocks should we first look out for?

As mentioned in yesterday’s article, Wall Street banks are set to hog the limelight this week as they kick off the earnings season, beginning today.

And not all signs point northwards for banking stocks.

According to a Bloomberg survey, the trading revenue at most of the banks listed above (BNP Paribas and Barclays were included as part of the survey, but not Wells Fargo) are set to announce a 26% drop in total trading revenue for Q2 2021 compared to the same period in the year prior. The CEOs of JPMorgan and Citigroup have already forewarned of a year-on-year decline of more than 30% in trading revenue for these respective banks.

Also, there have been concerns of late over the pace of the US economic recovery, so much so that financial stocks are among the lowest gainers quarter-to-date:

Keep in mind that financial stocks account for over 11% of the S&P 500.

Hence, how these banking stocks respond in light of their earnings could dictate how the S&P 500 performs this week.

It’s clear that banking stocks are in need of a picker-upper, and it could come in the form of better-than-expected earnings this week. Such positive surprises, in and of themselves, could spur US stock indices to greater heights, but as we noted earlier, there are other cross-currents to contend with this week.

From the June US CPI to be released later today, to Fed Chair Jerome Powell’s testimony on Thursday, and the US retail sales data due before the weekend, there are enough factors that are set to be major influencers over how the S&P 500 fares this week.

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