This is a somewhat unusual earnings season with a lot of moving parts. Expect to hear about tax cuts, buybacks, big revenue gains, trade wars and very high future earnings expectations. It's all a rather volatile stew, and the stock market is clearly expecting a positive outcome.
The stakes are high, with 20 percent profit growth expected in the second quarter and similar numbers expected for the rest of the year.
Here's what it will be about:
1. The emphasis will be on fundamentals and on the expanding economy, and less on the tax cuts. Despite what people think, the 20 percent gain in earnings is not just because of the tax cuts. Here's how that 20 percent profit growth breaks down, according to Goldman Sachs: 7 percentage points come from tax cuts and 13 percentage points come from pretax gains. So 35 percent of the gains are from tax cuts, and 65 percent from pretax gains.
2. The quarter's theme will be about revenue growth, not about cost cutting. Here's another old chestnut I keep hearing: "All the profits are coming because companies are cutting costs, they're not growing top line." That story is so 2016.
Revenue — top-line growth — has dramatically improved in 2018.