US stocks are on the rise after a turbulent April, but analysts project the weakest earnings season since mid-2023. Expectations for S&P 500 profits to increase by 2.5% year-on-year, with six sectors forecasted to see declines. The trade war impact on profits is yet to be fully realized.

Tech giants like Microsoft, Meta, Amazon, and Alphabet continue to invest heavily in AI development, with projected capital expenditures of $337 billion in fiscal 2026. S&P 500 profits are expected to rise by 14% in the second quarter, largely driven by these tech companies’ advancements in AI.

Stocks are expected to trade out of sync, providing opportunities for stock pickers. The one-month correlation between S&P 500 companies is at 0.12, a level seen only 3.2% of the time in the past decade. Investors are advised to focus on firms that can surpass earnings estimates, particularly in sectors like energy and financials.

In Europe, analysts have downgraded profit estimates due to fears of the trade war impacting margins. Tariff-exposed industries like automakers and miners have seen negative revisions. The impact of a stronger euro on European exporters will also be closely watched during the earnings season.

The weakening dollar, attributed to uncertainty over trade policies and Fed interest rates, is benefitting US exporters. Large-cap companies with significant overseas earnings are expected to see a boost in revenue. The dollar has dropped 10% this year, with more potential for decline, providing a tailwind for US earnings.

Read more at Yahoo Finance: Five Themes for Investors to Watch as Earnings Season Kicks Off