Most of us are hoping that the Q1 reporting cycle, which took the spotlight with the quarterly releases from JPMorgan JPM, Wells Fargo WFC, Morgan Stanely MS and others on Friday, will prove to be much more than simply background noise for this market, which remains fixated on bigger questions triggered by the tariffs uncertainty.
There are valid reasons for the market to remain focused on the tariffs issue since so much is happening in the broader economy, like the rise in treasury bond yields, pressure on the exchange value of the U.S. dollar, and softening consumer and business confidence. This unsettled backdrop has a bearing on consumer and business spending, which in turn increases risks to the economy’s growth trajectory.
The pause to the start of the reciprocal tariffs is welcome and has gone some ways towards reducing near-term risks to the economy. However, the overall air of uncertainty remains, which puts a question mark on current consensus expectations for the economy and corporate earnings.
The one reassuring aspect of the current environment is the U.S. economy’s solid foundations that allowed it to withstand the Fed’s extraordinary tightening over the last two years. The U.S. economy’s resilience and steady growth momentum have been the envy of the world, and it should give us confidence in its staying power in the current and coming periods of uncertainty.
It wouldn’t be easy, but let’s not forget that there was no shortage of recession calls in response to the U.S. Fed’s earlier tightening moves. Announcements of lowered recession odds by several major Wall Street firms in recent days following the tariff pause is partly an acknowledgement of this underlying strength and resilience.
We saw this in the JPMorgan and Wells Fargo results, which showed that consumers continued to spend at levels that we have been seeing in recent quarters. While heightened uncertainty and the resulting market volatility has been a headwind for investment banking activities, the trading business benefits from increased volatility. We saw that in the trading numbers from JPMorgan as well as Morgan Stanely and will most likely be a regular feature of this earnings season.
This Earnings Season is Not About the Q1 Numbers
Guidance is always a crucial part of the earnings releases, even though only a minority of companies provide actual guidance. Given the all-around uncertainty, the significance of guidance is even higher this time. Even so, we are unlikely to get much guidance this time around, as these management teams are as much at the receiving end of the unfolding tariffs issue as the rest of us.
This is a problem for current consensus earnings expectations for the coming quarters, which will most likely get lowered as we go through the Q1 earnings season. Unlike other reporting cycles, we will be more interested in how expectations for Q2 and beyond evolve instead of what companies actually report for Q1.
We are starting to see this for 2025 Q2 estimates, as the chart below shows.
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Image Source: Zacks Investment Research
The negative revisions trend is far more pronounced for full-year 2025 earnings estimates, as the chart below shows.
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Image Source: Zacks Investment Research
A big contributing factor to this year’s expectations was the potential positive impact of the Trump administration’s market-friendly policies in the shape of lowered taxes and deregulation. But as you can see above, aggregate 2025 estimates peaked in July 2024 and have been on a downtrend ever since.
Since the earnings outlook for the Energy sector had to be steadily ratcheted down due to persistent oil price weakness, we will need to look at the above aggregate earnings picture on an ex-Energy basis, which we do below.
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Image Source: Zacks Investment Research
This shows that 2025 earnings estimates peaked in January 2025 and have been trending down ever since. Our data shows that the negative revisions trend picked up pace in February and March, with the latest tariff headlines and associated diminished macro visibility adding to the pressure.
Key Earnings Reports This Week
We have over 80 companies on deck to report results this week, including 29 S&P 500 members. Dominating this week’s line-up are more Finance sector players, with the major banks, insurance companies, and regional operators coming out with Q1 results.
We have a sprinkling of bellwethers from outside of the Finance sector reporting results this week, including Netflix (NFLX), UnitedHealthcare (UNH), Johnson & Johnson (JNJ), CSX Corp. (CSX), United Air Lines, and others.
The chart below shows the year-to-date performance of Netflix, UnitedHealthcare, JNJ, and CSX Corp., relative to the S&P 500 index.
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Image Source: Zacks Investment Research
UnitedHealthcare’s outperformance is partly reflective of favorable changes to Medicare payment policies recently, but the company’s domestic orientation gives it ‘tariff immunity.’ Netflix and JNJ benefit from the same trend, while CSX Corp’s exposure to trade is fairly obvious.
We are seeing this in the revisions trend for these three players as well, particularly Netflix and UnitedHealthcare.
Early Q1 Earnings Scorecard
Including the aforementioned JPMorgan, Wells Fargo, and Morgan Stanley reports, we now have Q1 results from 29 S&P 500 members. Most of these 29 index members had fiscal quarters reporting in February, which we count as part of the March-quarter tally.
Total earnings for these 29 index members are up +6.5% from the same period last year on +5.7% revenue gains, with 65.5% of the companies beating EPS estimates and 72.4% beating revenue estimates.
The comparison charts below put the Q1 earnings and revenue growth rates for these index members in a historical context.
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Image Source: Zacks Investment Research
The comparison charts below put the Q1 EPS and revenue beats percentages in a historical context.
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Image Source: Zacks Investment Research
As you can see here, these early companies appear to be struggling to beat consensus estimates, with the EPS beats percentage for this group of companies the lowest in the preceding 20-quarter period. This is disconcerting, but we want to caution against reading too much into these early results, given the sample size.
Estimates Under Pressure
Looking at Q1 as a whole, combining the actuals from the 29 S&P 500 members with estimates for the still-to-come companies, the expectation is that earnings will be up +6.3% from the same period last year on +3.9% higher revenues, which would follow the +14.1% earnings growth on +5.7% revenue gains in the preceding period.
The chart below shows current earnings and revenue growth expectations for 2025 Q1 in the context of where growth has been over the preceding four quarters and what is currently expected for the following three quarters.
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Image Source: Zacks Investment Research
We noted earlier how estimates for the current period (2025 Q2) have started coming down already, which we believe will weaken further as companies report results and discuss the extent of uncertainty around their near-term business outlook.
Depending on where the emerging tariff regime settles, earnings estimates will need to come down in response. The ongoing market weakness is essentially a reflection of these diminished earnings expectations.
The chart below shows the overall earnings picture on a calendar-year basis, with a strong growth momentum expected through 2027.
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Image Source: Zacks Investment Research
For more details about the evolving earnings picture, please check out our weekly Earnings Trends report here >>>> Guidance to be Key Factor Earnings Season
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