S&P 500 Q1 Earnings to Rise by 5.9%, But Outlook Erodes

Earnings growth for S&P 500 expected up 5.9% for Q1 as outlook dims. The Magnificent 7, despite higher earnings, face challenges, affecting investor sentiment.

Date: 27-03-2025

AI Rating: 5

Earnings Growth and Revenue Expectations
According to the report, the total earnings for the S&P 500 in Q1 2025 are projected to rise by +5.9% compared to the previous year, along with revenues increasing by +3.7%. This indicates a continuation of earnings growth, albeit at a slower pace compared to previous quarters, where earnings growth was +13.8% and revenue growth was +5.5%.

Downward Revisions
Notably, Q1 earnings estimates have been trending lower. The initial expectation of +10.4% growth at the beginning of January has diminished to +5.9%. This downward revision trend is a significant point of concern for investors, suggesting that the overall sentiment may be turning negative.

The Magnificent 7 Performances
The report highlights the earnings expectations for the 'Magnificent 7' group of stocks, which comprises prominent tech companies. They are expected to deliver a +13.1% increase in earnings with +11.9% higher revenues in Q1 2025. However, excluding this group, earnings growth for the remaining S&P 500 companies is expected to only achieve +3.8%. Additionally, despite relatively high earnings expectations, these companies have experienced a downturn in stock prices, indicating that investor confidence may be waning.

Impact of Market Challenges
Factors such as rising operational costs and challenges related to market conditions, particularly for Tesla and Apple, contribute to this decline in stock performance. With the increasing financial burden on these companies, such as the costs associated with artificial intelligence initiatives, the outlook for their profitability may be affected in the short term.

Tech Sector Analysis
The tech sector overall is anticipated to continue as a growth driver; Q1 earnings are expected to rise by +12.4% on +10.1% higher revenues. However, there is noticeable pressure on estimates for this sector, reflecting a broader market trend where earnings forecasts have been adjusted lower for 14 out of 16 sectors.

This report presents a mixed outlook mainly influenced by the positive earnings growth forecast being overshadowed by declining growth rates and heightened operational costs. The market sentiment could remain cautious, leading to potential volatility in stock prices.

Stocks: AAPL AMZN GOOGL META MSFT NVDA TSLA