Within the S&P 500, 32 companies reported earnings last week, heavily emphasizing bank earnings. 71% of S&P 500 firms reported better-than-expected earnings for the quarter. The pace of the first-quarter earnings season picks up this week, with 121 S&P 500 companies scheduled to report, marking the second busiest week of the reporting season.
Earnings At A Glance
The financial sector contributed most positively to last week’s earnings growth improvement, while downward revisions to the technology sector offset the improvement. According to FactSet data, Goldman Sachs (GS) and Bank of America (BAC) were the most significant contributors to the increase in earnings for the financial sector, which rose to 6.1% from 4.5%.
Combining actual results with consensus estimates for companies yet to report, the S&P 500’s blended earnings growth rate for the quarter is at 7.2% year-over-year, equal to the expectations at the end of the quarter. Notably, the calendar year 2025 expected earnings and sales growth rates have faded as concerns about earnings and sales have increased due to the increased tariffs.
Market Performance
Tariff worries weighed on stocks with a 1.5% decline last week. After this week’s pullback, the S&P 500 sits 14% below its mid-February high. The Magnificent 7, consisting of Microsoft (MSFT), Meta Platforms (META), Amazon.com (AMZN), Apple (AAPL), NVIDIA (NVDA), Alphabet (GOOGL), and Tesla (TSLA), underperformed last week. The group remains in bear market territory at 26.5% below the mid-December all-time high.
10-Year US Treasury Yield
Much was made of the yield on the 10-year US Treasury rising instead of falling during the tariff-related stock weakness in the previous week. The typical doomsayers came out in force to predict some new apocalypse, but several less frightening factors seemed to be at play.
Last week, the 10-year Treasury yield was back to behaving more typically, with yields falling during the stock market weakness. Most of the decline in yields was from a decrease in the real, after-inflation yield demanded by investors, which reversed some of the increase from the previous week. This means investors are demanding less compensation for owning US Treasuries. Usually, this happens when expectations for economic growth decrease and investors are more interested in safety versus risk assets like stocks during these periods.
King Dollar
Recently, there has also been some gnashing of teeth about the US dollar’s depreciation against other currencies. This caused the alarmists to spread worries about the US dollar falling out of favor as the global reserve currency. Indeed, the tariffs or falling US yields could result in some rebalancing within currency reserves, but any dethroning of the king dollar remains a minuscule probability. The fact is that there is currently no suitable replacement for the US dollar. This does not mean the US should abuse its status, but overwrought concerns are not yet warranted. A longer-term history of the dollar shows that it has been weaker than its current level most of the time since 1999!
Magnificent 7
Because these companies are critical drivers of earnings growth, a significant percentage of the S&P 500’s market capitalization, and are currently in a bear market, the Magnificent 7 remains the group to watch this earnings season. According to FactSet, the Magnificent 7’s earnings are expected to grow 14.8% year-over-year versus 7.2% for the rest of the S&P 500. The blended earnings growth rate of the S&P 500 excluding the Magnificent 7 is 5.1%.
Two of the Magnificent 7 are scheduled to report results this week: Tesla (TSLA) on Tuesday and Alphabet (GOOGL) on Thursday.
Beyond the Magnificent 7, the second busiest week of reporting season has a plethora of notable companies scheduled, including 3M (MMM), Boeing (BA), ServiceNow (NOW), Merck (MRK), Procter & Gamble (PG), and PepsiCo (PEP).
Earnings Insights By Sector
According to FactSet data, Goldman Sachs (GS) and Bank of America (BAC) were the most significant contributors to the increase in earnings for the financial sector, which rose to 6.1% from 4.5%.
The healthcare sector is benefiting from easy comparisons for Bristol Myers Squibb (BMY) and Gilead Sciences (GILD), which are both expected to swing from losses in the same quarter last year to profits this quarter. The previous losses were due to the accounting treatment of pharma company acquisitions. If these two companies are excluded, the earnings growth rate for healthcare would be 3.6% according to FactSet.
The energy sector is predicted to show the most significant decline in year-over-year earnings due to lower oil prices.
Revenue Results By Sector
Sales growth is closely tied to nominal GDP growth, which combines after-inflation economic growth (real GDP) with inflation. At this early point in the earnings season, sales growth at 4.3% has slightly undershot expectations.
Consistent with the earnings picture, once the distortions from the healthcare sector’s accounting are removed, the technology sector is expected to provide the most robust revenue growth.
What To Watch Next Week
With relatively few top-tier economic releases this week, markets are likely to be dominated by earnings and politics. Markets remain very attuned to newsflow around the tariffs, since the size and duration of the tariffs should be positively correlated with the extent of economic growth headwind.
Actual economic data has remained relatively resilient despite the tariff storm. On the other hand, soft data from surveys shows the reasons for the consternation about the economic outlook. For example, consumer sentiment readings have plunged. While this plunge does not guarantee an impending recession, it points to at least some economic softness if the 2022 period is a proper corollary.
Consumer sentiment remains very dependent on the political party of those surveyed. Just as the opposite was the case under President Biden in 2022, Democratic sentiment has plunged relative to Republicans under President Trump.
This week’s earnings reports should provide insight into additional sectors and two of the Magnificent 7. With the tariff overhang and growing concerns about the resilience of the artificial intelligence wave, forward earnings guidance from management will be watched even more closely. Consensus earnings growth estimates for the calendar year 2025 earnings have been reduced, even though the first quarter’s earnings have arrived as expected thus far.
Generally, at 14% off their highs, stocks expect these tariffs to be temporary and a passing headwind for earnings. This expectation could be valid, but there could be more downside if elevated tariffs are viewed as more permanent and likely to send the global economy into recession. Upside could come from significant trade deals that lessen the headwinds or a pivot from the administration away from tariffs.
The short-term forecast for stocks seems even more impossible to predict than ever, but the long-term outlook is almost certainly not at risk. Stocks have outperformed cash, bonds, and inflation by a wide margin over the long term despite many setbacks, many much scarier than tariffs or recession.