2Q25: Slower Earnings Growth and Margin Pressure for the S&P 500
After the S&P 500 hit new highs, the focus is now on Q2 earnings season. Here are the key takeaways:
- Earnings kickoff: Big banks like Citigroup, JPMorgan, and Wells Fargo will kick things off on July 15. By early August, over 70% of the index will have reported.
- Earnings slowdown: S&P 500 EPS growth is expected to come in at +4% year-over-year—much lower than the 12% seen in Q1. Revenue growth is also set to slow to +4%, and margins are under pressure, falling from 12.1% to 11.6% quarter-over-quarter.
- Sector impact: Earnings in Energy are expected to drop by 28%, with Materials and Consumer Discretionary down 7%. On the flip side, Tech and Communication Services are leading the pack with gains of 18% and 28%, respectively.
- Tariff effect: New tariffs, which rose from 3% to 13%, are starting to make an impact. While companies haven’t fully passed the added cost to consumers yet, margin pressure is becoming more visible in the most exposed sectors.
- Full-year outlook: Analysts have trimmed their 2025 earnings forecasts for the S&P 500 by 2%, now expecting +7% growth for the year. A stronger recovery is projected for 2026, with growth around +14%.
Market takeaway:
Earnings growth is cooling and margins are feeling the squeeze. Still, lower expectations could leave room for upside surprises.
Source: Goldman Sachs
