What to watch during the 1Q 2025 earnings season

Investing.com -- The first-quarter 2025 earnings season kicks off this week, with Goldman Sachs strategists flagging key trends for investors to monitor.

The Wall Street giant projects that the S&P 500 earnings per share (EPS) will see a growth of 3% in 2025 and 6% in 2026. These figures fall below the top-down strategist consensus, which predicts a 10% increase for 2025 and a 9% increase for 2026, and also trail the bottom-up consensus of equity analysts who expect a 9% and 14% rise, respectively.

Despite the market’s sharp sell-off in response to recent tariff announcements and concerns over the global economy, consensus earnings estimates have remained relatively stable, with just a 2% decline year to date.

During that period, the S&P 500 index tumbled as much as 14%, with the bulk of that decline coming after the tariff announcements on April 2nd.

Goldman Sachs projects that the S&P 500 profit margins will experience minimal expansion, contradicting consensus estimates which forecast margins to rise above 12% this year, setting a new record.

“In a downside scenario, the typical magnitude of contraction during past recessions would indicate an S&P 500 EPS decline of 13%,” strategists led by David J. Kostin said in a note.

The first-quarter earnings season, starting next week, is expected to be a critical period for investors seeking insights into corporate profits and economic activity.

Wall Street analysts predict a 6% year-over-year growth in first-quarter S&P 500 EPS, which is a more attainable target compared to previous quarters and is down from an 11% growth expectation earlier in the year.

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The majority of companies, 87%, are scheduled to report their earnings between April 11th and May 9th.

Goldman Sachs also expects that during this earnings season, fewer companies than usual will provide forward guidance for the second quarter and the full year. Historically, 20% of companies offer quarter-ahead guidance during earnings calls, while 43% provide full-year guidance.

“In the absence of guidance, investors should monitor sales revisions to gauge the demand outlook and capex revisions to assess the trajectory of corporate investment spending,” the strategists continued.

Furthermore, the strategists expect that rising tariff rates will compel many companies to either increase prices or accept reduced profit margins.

They forecast negative revisions to consensus profit margin estimates in the upcoming quarters, putting a premium on companies with strong pricing power.

According to their analysis, stocks with robust pricing power have consistently outperformed their peers, particularly during the trade conflicts of 2018-2019 and again this year.

Goldman Sachs believes that the equity market is likely to remain volatile, with medium-term risks skewed to the downside as long as the risk of recession remains high.

This assessment comes in the wake of this week’s market volatility, with their Sentiment Indicator registering at -2.5, which has historically indicated a potential near-term trading opportunity.

However, the bank cautions that the market may not yet be pricing in a recession, and past experiences such as in 2022 show that markets can continue to decline amidst deteriorating fundamentals.

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