The first quarter of 2025 is shaping up to be more dynamic than expected for companies in the S&P 500. With over a third of constituents having already reported their earnings, some clear trends are emerging: profits are beating expectations, a few sectors are standing out as growth drivers, and despite macroeconomic uncertainties, U.S. corporations seem to have started the year on solid footing. Still, signs of caution are surfacing that deserve close attention.
Earnings Growth Exceeding Expectations
According to FactSet, 36% of S&P 500 companies have released their Q1 results. The numbers are telling: aggregate earnings are up 10.1% year-over-year, significantly ahead of the 7% growth expected just a week ago. If this pace continues as more results come in, Q1 2025 would mark the second consecutive quarter of double-digit earnings growth—and the seventh straight quarter of year-over-year earnings gains for the index.
This upbeat trend comes despite persistent uncertainty around interest rates, inflation, and geopolitical tensions. For now, U.S. corporate earnings appear resilient.
Sector Standouts: Healthcare, Tech, and Communications
The strong earnings growth is largely being powered by a few key sectors. Communication services, financials, and healthcare have delivered standout performances, with companies in these industries surpassing expectations.
- Communication services shined last week, led by strong results from heavyweights like Netflix and Alphabet.
- Financials and healthcare began showing strength in late March and continue to outperform.
- Conversely, the energy sector is lagging, hampered by softer commodity price dynamics compared to Q1 2024.
Strong EPS Beats, But Fewer Surprises
So far, 73% of companies have exceeded EPS estimates—a solid figure, though slightly below the 5-year average (77%) and the 10-year average (75%). However, the magnitude of the beats is larger than usual: the average EPS surprise is +10%, outpacing the 5-year average (8.8%) and the 10-year average (6.9%).
Corporate Guidance Remains Sparse
One of the more telling trends this quarter is the drop in forward guidance. Only 16% of reporting companies have issued guidance for future quarters, compared to 27% during the same period in 2024. This signals heightened caution, likely a reflection of ongoing economic uncertainty.
Revenue Growth: Positive, But More Moderate
Revenue trends are also positive, though more subdued than earnings growth. 64% of companies have reported revenue above expectations—on par with the 10-year average but slightly below the 5-year norm (69%).
Overall, revenue is up 4.6% year-over-year, modestly above the 4.3% pace recorded last week. Notably, 10 of 11 sectors are reporting revenue growth, with industrials being the only segment showing a slight decline.
Outlook for 2025: Continued Growth, Slower Pace
Looking ahead, analysts remain optimistic, though they expect growth to moderate in upcoming quarters:
- +6.4% earnings growth expected in Q2
- +8.8% in Q3
- +8.3% in Q4
For the full year, S&P 500 earnings are projected to rise by 9.7%.
Valuations: Still High, But Not Excessive
The forward P/E ratio for the S&P 500 currently stands at 19.8, slightly down from 20.2 at the end of March. This is just below the 5-year average (19.9), but still above the 10-year average (18.3). Valuations remain elevated, but not unreasonably so—especially if earnings growth continues to hold up.
A Crucial Week Ahead
The busiest stretch of the earnings season is upon us. This week, roughly 180 companies are set to report, including mega-cap names like Meta, Microsoft, Apple, Amazon, Coca-Cola, Pfizer, and McDonald’s. With tech and consumer giants on deck, market sentiment could shift dramatically depending on how these players perform.
Bottom Line: Encouraging Signals, But the Full Picture is Still Forming
Q1 2025 earnings so far deliver a strong message: U.S. corporate fundamentals remain solid. Earnings growth is outpacing expectations, revenue is rising across most sectors, and valuations are relatively stable.
That said, the drop in guidance issuance and sector divergence suggest companies are still navigating a complex environment. As more earnings roll in, the coming weeks will be key to confirming whether this strong start can carry through the rest of the year.
Rational Wealth 