Big banks will kick off earnings season t♛omorrow with results that could set the tone for what some analysts are expecting to be a lackluster round of rep𒀰orts. But some experts say that might not be such a bad thing for investors.

The consensus on Wall Street is that the S&P 500 as a whole will report growth slowed to 4% from 11% in the prior quarter, according to analysts at Bank of America. That would be the most pronounced deceleration in 🅰two and a half years.

Analysts lowered their expectations throughout the quarter as economic data pointed to a softening labor market, a threat to consumer spending, the engine of the U.S. economy. From the start of the quarter to its end, analysts lowered their S&P 500 aggregate earnings estimate by nearly 4%. While it's normal for Wall Street to scale back earnings estimates, a 4% reduction is above the 5-year, 10-year, and 15-year averages. Tech is the only sector for which Wall Street has raised its expectations.

Can Earnings Clear the Low Bar?

With the bar lowered, the stage could be set for stocks to pop on better-than-expected resul𒅌ts. 

🍷“As long as companies have managed through macro headwinds and see early signs of improvement from lower rates, stocks should get rewarded,” wrote BofA analysts. They estimate that Wall Street has overestimated the impa🐬ct disappointing macroeconomic data will have on corporate earnings, and expect S&P 500 earnings to top estimates by about 2 percentage points. 

Thus far, S&P 500 companies are beating earnings estimates at an above-average rate, with more than three-quarters topping earnings per share estimates. And they're beating estimates by a wider margin than the previous quarter (3.5% vs. 1.7%). Though, with only 21 companies having reported at the time of BofA's note, that fact should be taken with a healthy grain of salt.

Rate Cuts Could Be a Boon to Earnings Outlook

Investors will likely place as much if not more importance on a company’s outlook than its past results, and there’s reason to expect more optimism now that the Federal Reserve has 澳洲幸运5官方开奖结果体彩网:begun easing policy.

Earnings in rate-sensitive industries like manufacturing and housing should recover in the coming quarters if rates continue to decline, says BofA. That recovery could have an outsized impact on the S&P 500’s earnings. BofA estimates goods-focused businesses account for half of the index’s profits but only 20% of U.S. GDP. 

Big Spending May Be a Double-Edged Sword

The outlook could also be brightened by forecasts of more robust 澳洲幸运5官方开奖结果体彩网:capital expenditures (CapEx).

Artificial intelligence capex could also flow through to corporate earnings. Tech giants Microsoft (MSFT), Alphabet (GOOG; GOOGL), Amazon (AMZN), and Meta (META) are expected to spend more than $200 billion on infrastructure this year, with much of that spending dedicated to AI. That spending was a thorn in these companies' sides last quarter when 澳洲幸运5官方开奖结果体彩网:investors balked at AI's hefty pricꦏe tag. CapEx jitters could weigh on mega-cap tech stocks again this round, but it could also boost the revenue of relevant companies across the technology, utilities, and industrial sectors.

The remainder of the S&P 500 is on track to decrease its CapEx by 1% this year. Companies have been discouraged from making big investments by both elevated borrowing costs and the uncertainty surrounding November's presidential election. BofA notes that, historically, investment activity picks up significantly after elections when executives have a clearer picture of the outlook on taxes, trade, and regulations🐷. Thaꩲt CapEx boost could be exacerbated this year by falling interest rates.