Hi everyone. I'm Liz Ann Sonders and this is the May Market Snapshot. Thank you as always for tuning in. In this relatively short episode, I would like to share an update on how first quarter earnings season is progressing so far, while also taking a look at the trajectory for calendar year 2025 earnings. This is all for the S&P500.
[High/low chart for "Q1 strength not helping remaining quarters" for S&P 500 year/year earnings growth for 2025 quarters is displayed]
As of the end of last week, the season is going fairly swimmingly. As you can see in the blue line here, relative to the consensus estimates of March and April, first quarter growth is currently estimated to be more than 13% and that's up from 8%. Unfortunately, as you can see, this better-than-expected first quarter has decidedly not given way to any improvement to the remaining three quarters this year. It should be obvious why analysts are reticent about the outlook. In a word: tariffs.
[High/low chart for S&P 500 year/year earnings growth for 2024, 2025, 2026 is displayed]
In terms of the annual outlook, the uptick in 2025's consensus estimate is solely a result of better first quarter S&P 500 earnings; while still remaining well below 2024's 12% year/year earnings growth. Although still in its infancy, estimates for 2026 are trending lower as well. A big part of the problem at play is the rising number of companies withdrawing forward-looking guidance altogether. That leaves many analysts flying somewhat blind. Our outlook is that analysts left to their own devices will likely continue to bias down their estimates; at least while there remains elevated trade war-related uncertainty. That said, trying to subjectively enumerate the impact of the moving target of tariffs will remain an epic challenge.
[Table for "Health Care leads; Energy lags" for Earnings by sector is displayed]
Here is a detailed breakdown of all eleven S&P 500 sectors and the index itself; covering all four quarters of last year and this year, along with the comparison between 2024's actual earnings and 2025's estimates.
[Yellow highlight for 1Q25 year/year earnings is displayed]
For the first quarter, the strongest earnings growth has been among the Health Care and Communication Services sectors; with the Energy sector bringing up the rear.
[Yellow highlight for Consumer Discretionary, Consumer Staples, Financials, Technology, Communication Services, Utilities and S&P 500 2024 and 2025 earnings is displayed]
Looking ahead to the full year, 2025, the yellow boxes highlight the six sectors, and the S&P 500, for which earnings growth is expected to decelerate this year relative to last year, with the most significant deterioration expected for the Consumer Discretionary sector. Outside of the yellow boxes are those sectors for which earnings growth is expected to accelerate this year relative to last year, with the most significant improvement expected for the Health Care sector.
[High/low chart for "Lower revisions" for Citi U.S. Earnings Revisions Index is displayed]
Now, Citi tracks earnings revisions. They track upgrades relative to downgrades by the analyst community. Now although up from the recent low, it's clear that earnings revisions have been generally trending lower over the past year or so. Now, the gray bars on the chart are recessions. Before this latest uptick in revisions, as you can see, the index was heading toward what would be considered recession territory and we will be watching this very closely given still-heightened recession risk at play alongside the trade war.
[High/low chart for "Lower beats" for S&P 500 earnings and revenue beat rate is displayed]
Now of the 357 companies in the S&P 500 having reported first quarter earnings to date, this is as of last week, about 74% have reported earnings above analysts' estimates. This compares to an average of 77% over the past four quarters. Now, in terms of top-line growth, a lesser 61% have reported revenues above analysts' estimates vs. the prior four quarter average of about 62%.
[Red arrow on S&P 500 earnings and revenue beat rate chart is displayed]
The general downtrend in place since 2021 remains in place; clearly sharper on the revenue side vs. the earnings side. On the earnings side, there was an acceleration, as you can see, in 2023, but then a deceleration kicked in since then. Now, the percentage of companies beating on both the top-line and bottom-line continues to be below average; having actually just hit a five-year low so far in this earnings reporting season.
Now the highest beat rates have been among the Technology and Health Care sectors; with REITs and Communication Services bringing up the rear.
[High/low chart for "Misses getting crushed" for average S&P 500 member return in excess of S&P 500 return when EPS beat is displayed]
Now let's take a look at how the market has been treating both earnings beats and misses. Starting with the stocks of companies beating earnings estimates. They are still being rewarded with only a slight gain though on the first trading day following the earnings releases; again only marginally though, and as you can see well lower than the elevated rewards accrued to stocks of companies beating in mid-2024.
[High/low chart for average S&P 500 member return in excess of S&P 500 return when EPS miss is displayed]
Now on the other hand, the misses have been disproportionally hit. The more than 4% average decline on the first trading day following the earnings releases was only exceeded on the downside over the past six years in the third quarter of 2022, as you recall that was when high inflation and tighter monetary policy was plaguing the outlook.
[List of "Takeaways" is displayed]
In sum, although first quarter earnings growth has been better than expected, with about two-thirds of S&P 500 companies having reported, the outlook is extremely murky still. Ongoing adjustments to tariff levels, specific product categories, and exemptions—not to mention the lack of transparency around trade negotiations—means that quantifying the impact at this point anyway is nearly impossible. It is probably safe to say that more tariff relief is needed to stabilize the outlook for S&P 500 earnings. About that, I have no clearer a crystal ball than anyone. But I will thank you as always for tuning in and we will be back with another video next month.
[Disclosures and Definitions are displayed]
