3 Stocks to Cushion Your Portfolio This Earnings Season

The upcoming earnings season is characterized by a bifurcated outlook, with technology stocks poised for strong performance while consumer staples and discretionary sectors face projected negative earnings growth of approximately 3% and 5.4% respectively, driven by sticky inflation and tariff uncertainties. Amid this backdrop, individual defensive stocks like PepsiCo and Procter & Gamble, despite recent underperformance and headwinds such as GLP-1 drugs or private label competition, are showing technical signs of potential rebound or value, while high-growth Costco faces valuation scrutiny and recent sales growth moderation, prompting profit-taking. This environment underscores a market navigating significant sector divergence, valuation considerations, and company-specific catalysts ahead of earnings reports.

Analysis

The market is exhibiting significant sector divergence ahead of earnings season, with technology stocks anticipated to perform strongly while consumer-facing sectors face headwinds. According to FactSet data, consumer staples and consumer discretionary sectors are projected to report negative average earnings growth of 3% and 5.4%, respectively, pressured by persistent inflation and uncertainties around potential tariffs. Within this challenging consumer environment, specific defensive names are showing signs of potential inflection. PepsiCo (PEP), despite a substantial 18% stock decline over the last 12 months and four consecutive quarters of year-over-year revenue decline, is showing technical signs of a bullish reversal with its price crossing the 50-day simple moving average. Similarly, Procter & Gamble (PG), down 9.1% in 2025 and trading at a 52-week low, is viewed as a potential opportunity due to an oversold RSI, a valuation below its historical average, and expected margin strength in its upcoming July 29 report. In contrast, high-performer Costco (COST) is facing valuation scrutiny with a P/E ratio over 55x. A recent deceleration in same-store sales growth to 5.5% for June, below the 6% consensus and down from 8% in the prior report, has triggered profit-taking and places the stock at risk of a further decline if it breaks support at its 200-day moving average.

Key Decisions for Investors

• Given the projected earnings weakness in consumer staples and discretionary sectors, investors should review their sector allocations and weigh the relative strength in technology against the specific risks and opportunities in consumer-facing names.
• For investors with a higher risk tolerance, the technical weakness in Procter & Gamble (PG) and PepsiCo (PEP) could present contrarian opportunities ahead of their respective earnings reports on July 29 and July 17, but this must be balanced against fundamental headwinds like private-label competition and moderating pricing power.
• Holders of Costco (COST) should monitor the stock's high valuation and watch for a potential break of its 200-day simple moving average, as the recent slowdown in sales growth could trigger further downside pressure toward the $957 support level.
• Consider positioning for Procter & Gamble's upcoming earnings, as the report is expected to feature announcements on additional share buybacks and provide clarity on margin strength, which could serve as a positive catalyst for the stock.