SUMMARY
US corporates are publishing first quarterly earnings. Here are five observations as reporting gets underway.
KEY TAKEAWAYS:
Many S&P 500 companies report first-quarterly earnings in the coming days
Top-down strategists still have more bullish earnings forecasts
Banks reported a decent first quarter, but downside risks persist
Semiconductor equities look more vulnerable than previously
Pharmaceutical tariffs could hurt the sector near term
It’s too early in the first quarterly reporting season to make sweeping conclusions about the state of the profits outlook for 2025.
The 59 S&P 500 companies reporting so far have beat first quarterly consensus by 5.7% on average, but all focus remains on the outlook (or lack thereof) for the rest of 2025. We offer some initial thoughts:
1. The next two weeks will shape the first quarterly narrative, with 65% of S&P 500 market cap due to report.
This week, 115 S&P 500 firms will release first quarterly earnings, followed by another 176 next week. Among the Magnificent 7, Tesla and Google report this week, while Meta, Microsoft, Apple and Amazon report next week. We will be particularly focused on key cyclical bellwethers across industrials, tech and consumer sectors who face the most acute earnings risk from higher tariffs and US fiscal uncertainty.
Transports are likely to show a drop-off in volumes after a strong first quarter driven by pre-tariff hoarding. Results from analog chipmakers, which sit upstream in nearly every supply chain, are always useful for tracking industrial, auto, and electronics demand. And even though many consumer names don’t report until May, early releases typically set the tone for assessing broader spending patterns across income segments.
2. We see a growing divide between top-down and bottom-up earnings estimates.
Top-down strategists don’t need to wait for corporate guidance to recognize the effect that tariff uncertainty is likely to have on revenue and profits growth this year.
Of the 21 sell side equity strategists regularly polled by Bloomberg, roughly half have reduced their estimates for 2025 earnings in the past month. The median top-down earnings per share (EPS) estimate now calls for just 4% growth ($257) this year, while bottom-up estimates still sit at a rosier +7.5% ($265).
Even so, the most pessimistic top-down strategist is still calling for modest earnings growth in 2025. If the US does enter a recession this year, there’s a lot more room for further downgrades.
3. Banks aren’t throwing in the towel...yet.
The big US banks largely beat estimates for the first quarter, with strong trading revenues in a volatile quarter offsetting a softer patch for investment banking and wealth management businesses.
In general, consumer facing products held up well in the quarter, while provisions for loan losses came in lower than some more pessimistic analysts expected. Solid backward-looking results and a reiteration of guidance does not mean that banks – or businesses more broadly – are out of the woods. But with tariff negotiations actively underway, corporate executives seem to be paying lip service to potential tariff disruptions without proactively resetting guidance.
Our fear is that if growth does deteriorate into mid-year, bank analysts will not have sufficiently downgraded their estimates to reflect this still-real possibility.
4. There’s nowhere to hide in semis right now.
For the past two years since the release of ChatGPT, AI-related chipmakers have traded as defensives within technology as big data center players continued to revise up capex plans. This safe-haven trade within stocks has largely broken down as worries about AI capex cuts are growing louder.
Adding to the semi pain last week, leading GPU makers wrote down expectations for sales abroad as the US government cracks down on shipments of cutting-edge chips to China. Meanwhile, analog and lagging edge chipmakers are leading the segment lower amid fears over a broad economic slowdown.
Lastly, the world’s leading semi equipment player missed on first quarter bookings amid tariff uncertainty, while the world’s largest foundry signaled it will be more expensive to run its new US operation in part because many components entering the factory are imported and therefore face tariffs. Needless to say, the Philadelphia Semiconductor index ended the week 4% lower. We aren’t bottom fishers in semis here.
5. Pharma is talking a big game on US manufacturing. But sector level tariffs will hit first.
By our count, over the past few weeks big pharma has announced investments of roughly $100bn in additional US manufacturing capacity through the rest of President Trump’s term. Assuming this year’s tax bill includes incentives for domestic investment, we see a potential dual manufacturing approach taking shape, where drugs sold for US consumption are manufactured domestically while foreign factories supply the rest of the world.
That said, we are wary about taking these large dollar promises at face value yet, as companies aren’t providing much timing guidance for when they may actually start deploying capex. More immediately, investors await an announcement on pharma-specific tariffs, which are likely to be more durable than broad-based reciprocal tariffs and could lead to higher drug prices in the US in the more immediate term.
