The flood of second-quarter — Q2 — corporate earnings reports begins this week.

Consensus expectations are for earnings to be under pressure for a third consecutive quarter. Businesses face the headwinds of entrenched inflation , high labor costs, a tapped-out consumer, and sharply higher interest rates . Businesses and households are also paying the price for profligate fiscal stimulus . According to FactSet , for Q2, the estimated earnings decline for the S&P 500 is -7.2%.

That would mark the largest earnings decline reported by the index since Q2 2020 (-31.6%) in the midst of the COVID-19 recession. The Biden administration is telling us that everything is great, but corporate profits say the economy is in a recession. Earnings guidance has been largely negative, with 67 S&P 500 companies guiding lower .

To be sure, true believers in Bidenomics will shout, "Look at the stock market, it is up sharply from the 52-week lows!" The problem is that the strong performance of the S&P 500 is flattered by the extraordinary gains registered by just a handful of stocks that are reaping the benefits of technology. The equal-weighted S&P 500 index has underperformed the market capitalization weighted index by 10%. Typically, the equal-weighted index outperforms the market capitalization index as the market rebounds from a bear market.

Just 7 S&P 500 companies are doing the heavy lifting on earnings. If the stock performances of Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta, and Tesla are stripped out, then the S&P would be flat for the year. Bidenomics is not driving the performance of the big 7 out-performers. Investment in research and development and creative destruction are the explanations for why the world’s greatest companies are outperforming.

Instead, the reality is that Bidenomics caused almost unprecedented inflation. That inflation forced the Federal Reserve to raise interest rates aggressively. The spike in interest rates is putting pressure on the net interest margins of the nation's banks. At the end of the week, earnings will be reported by JP Morgan, Citigroup, and Wells Fargo. Investors will be focusing on whether depositors are fleeing banks for the higher interest rate returns of money market funds and short-maturity Treasuries. Investors will be watching for another bank meltdown similar to that of Silicon Valley Bank .

In the energy sector, the largest oil companies are expected to report poor earnings. Domestic producers are achieving record production levels, but global demand for oil is weak. U.S. households are smiling and driving, shareholders in Exxon and Chevron are frowning.

That said, companies with strong brands such as Coca-Cola, PepsiCo, and Procter & Gamble should report stellar earnings. The companies have pricing power. They pass costs along to the consumer. That is not greedflation, it is protecting margins so that shareholder returns are maximized. The duty of a corporate board is to maximize profits.

For most companies that make up the S&P 500, wages are the largest component of costs. Labor accounts for almost 70% of the cost basis of services companies. According to the Federal Reserve Bank of Atlanta, wages are running up around 6% . Productivity growth is expanding at around 1.5% or lower. Margins are being compressed .

The watchwords for Q2 earnings are caveat emptor.

James Rogan is a former U.S. foreign service officer who later worked in finance and law for 30 years. He writes  a daily note  on finance and the economy, politics, sociology, and criminal justice.