May 2025 | Insights from Advanced Wealth Management
As Q2 unfolds, we’re seeing notable themes emerge from corporate earnings and economic signals. While the first quarter delivered stronger-than-expected earnings growth, the outlook for the rest of 2025 remains clouded by uncertainty—particularly around trade policy. Here’s what we’re watching closely and how it may influence portfolio positioning.
Q1 Outperforms—but Momentum Stalls There
Corporate earnings for Q1 2025 surprised to the upside, with year-over-year growth for the S&P 500 currently tracking over 13%, well above the 8% expected just a few months ago. Despite this strong start, the outlook for the remaining quarters has not improved. In fact, most analysts continue to lower their expectations for the rest of the year.
The driving force behind this cautious tone? Tariff-related uncertainty. Ongoing adjustments to trade policy and limited clarity around future negotiations are making it difficult for companies to provide guidance—leaving analysts without solid footing and contributing to continued downward revisions.
2025 Full-Year Forecasts Lag Behind 2024
The full-year earnings forecast for the S&P 500 has ticked up modestly—solely due to Q1 strength—but remains well below the 12% growth achieved in 2024. Even more concerning, early estimates for 2026 are beginning to trend lower.
This trend highlights a key risk in the current environment: with many companies pulling back on forward-looking guidance, analysts are largely flying blind. In the absence of clear corporate commentary, market expectations are likely to remain conservative.
Sector Trends: Defensive Leaders Emerge
Breaking down sector-level performance, the Health Care and Communication Services sectors have shown the strongest earnings growth so far in 2025. On the other end of the spectrum, Energy continues to lag.
Looking at the full-year outlook:
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Six major sectors, including Consumer Discretionary, Financials, Technology, and Utilities, are projected to post slower earnings growth this year compared to 2024.
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Health Care stands out with the most notable acceleration in earnings growth—a signal of rotation toward more defensive positioning in portfolios.
Earnings Revisions and Beat Rates Point to Caution
We’re also closely monitoring the pace of earnings revisions. While there’s been a small rebound, the overall trend over the past year has been downward. Historically, this kind of pattern has coincided with recession-level risk.
As of this week, around 74% of companies that have reported earnings have beaten estimates—slightly below the four-quarter average of 77%. Revenue beats are even less frequent, coming in at 61%, which is just under the previous average of 62%.
These lower beat rates suggest that companies are finding it harder to exceed expectations, especially on the top line, even as cost-cutting efforts help the bottom line in some cases.
Market Reaction: Less Reward for Wins, More Punishment for Misses
Investors aren’t responding to earnings results the way they did in prior quarters. Companies that beat estimates are seeing modest share price increases, much lower than mid-2024 levels.
Meanwhile, companies that miss earnings expectations are being hit harder—declining more than 4% on average the day after results. That’s the steepest penalty seen since late 2022, when inflation and interest rate concerns were weighing heavily on sentiment.
Looking Ahead: Maintain Discipline Amid Uncertainty
While Q1 offered a strong start to the year, continued volatility around trade policy and limited visibility into corporate earnings remain key challenges. As always, we advocate a disciplined approach:
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Diversify across sectors and geographies
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Emphasize quality and earnings visibility
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Remain patient as the market digests short-term noise
We continue to monitor developments and adjust positioning as warranted to align with your long-term financial objectives.
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Tony Gomes, Author, MBA
CEO and Founder
Advanced Wealth Management
Content Disclosure: The information here is general and educational. It is not a substitute for professional advice and does not constitute a recommendation. Forecasts and opinions are subject to change.
