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In One Chart: Get ready for peak earnings growth as second-quarter results kick off this week

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Stock indexes shot back into record territory Friday, a day after their stumble sparked by tumbling Treasury yields and economic growth concerns. Equities could be poised for a further boost next week from the kickoff of second-quarter earnings.

Big banks, including JPMorgan Chase & Co.
JPM,
+3.20%

and Goldman Sachs Group Inc.
GS,
+3.57%
,
are due to report earnings Tuesday, followed a day later by Bank of America Corp.
BAC,
+3.25%
,
Citigroup Inc.
C,
+2.58%

and Wells Fargo & Co.
WFC,
+3.76%
,
and by Morgan Stanley
MS,
+3.07%

on Thursday.

After setting the tone for the past 15 months, earnings at the big U.S. public banks are expected to surge about 204% in the second quarter from the doldrums of a year ago, according to BofA Global analysts.

That compares with an already dramatic 55.5% earnings growth rate expected for the broader universe of U.S. investment-grade companies for the same stretch.

Q2 on pace for peak earnings.

BofA Global

While earnings are expected to book a pandemic peak in the second quarter, the above chart also illustrates how sharp they fell a year ago, when households and much of the economy hunkered down amid the pandemic.

More broadly, companies in the S&P 500 index
SPX,
+1.13%

are expected to see a 63.6% increase in earnings in the second quarter from a year before, which would mark its highest 12-month climb since the fourth quarter of 2009, according to FactSet analysts.

“Since it is likely to be a record-setter for growth, it is critical that investors not lose sight of these significant fundamental developments,” Joseph Amato, chief investment officer for equities at Neuberger Berman, wrote this week about the coming corporate reporting season.

“Should the momentum in earnings continue — and we think it will — we believe the market can remain resilient as policymakers adjust their thinking.”

The S&P 500 and Nasdaq Composite
COMP,
+0.98%

were poised for fresh records Friday, after stocks slumped Thursday as investors gauged how much longer the Federal Reserve might keep up its support for the economy running at full throttle. Concerns also have been raised about whether the economy can grow at the Fed’s 2% target over time, and about the COVID-19 delta variant.

Atlanta Fed President Raphael Bostic said Wednesday that the central bank’s eventual tapering of monthly asset purchases would be gradual, a day after June’s Fed minutes highlighted discussions at the central banks about the timing and possible first steps to reduce its large-scale purchases. The 10-year Treasury yield
TMUBMUSD10Y,
1.359%

fell to 1.354% Friday, after tumbling to its lowest level since Feb. 18 the day before, according to Dow Jones Market Data.

“Markets don’t typically go up or down in a straight line,” Amato wrote, adding that markets can become even more volatile in a bull market, “especially with central banks adjusting their policy stance as the recovery sets in.”

Read: Here’s your chance to buy bank stocks before rising interest rates boost profits

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