S&P 500 2025 Q1 Earnings Preview: A Clearing Event or More Uncertainty?

Earnings season kicks off this week and we preview the S&P 500 2025 Q1 earnings season in granular detail, providing both aggregate and company-level insights using data from I/B/E/S, StarMine, and Datastream, which are all found in the desktop solution LSEG Workspace.

Using the April 4^th publication of the S&P 500 Earnings Scorecard, Q1 earnings growth is forecasted at 7.8%– the slowest pace in five quarters. Health Care and Information Technology are driving the bulk of earnings growth–excluding these sectors, growth would fall to just 0.1%.  Q1 is expected to be the weakest quarter in 2025, with growth expected to reaccelerate to 10-12% in the remaining quarters of the year (Exhibit 1).

Aggregate S&P 500 earnings are projected to come in at $507 billion for Q1, down from a record $553 billion in the prior quarter. On a quarter-over-year basis, earnings growth stands at -9.0%—the weakest rate since 2020.  Looking further out, aggregate earnings are still expected to trend higher, with forecasts calling for $700 billion by year-end 2026.

The distribution of Q1 earnings growth is skewed to the upside. Roughly 30% of index constituents are projected to grow earnings by more than 10%, while just 21% are expected to contract by more than 10%.

While still early in the Q1 reporting cycle, only 57.9% of the 19 companies that have reported so far have exceeded analyst expectations—well below the four-quarter average of 77%. If this trend holds through earnings season, it will mark the weakest beat rate since 2008.

Heading into earnings season, Q1 growth expectations were revised down by 4.3 percentage points—above the long-term average of -3.3 points (Exhibit 3). This marks the largest downward revision since Q4 2023 and the third straight quarter of estimate cuts leading into the reporting season. At the sector level, revisions were broad-based. All sectors except Utilities saw estimates decline, with the most significant reductions in Materials, Consumer Discretionary, and Industrials (Exhibit 4). At a constituent level, the primary drivers of the Q1 downgrade include Ford, Apple, and Tesla, along with insurers such as Travelers Companies, Chubb, and Allstate. The insurance group was impacted by losses related to the Los Angeles wildfires (Exhibit 5).

A key driver of estimate downgrades heading into the quarter appears to be weaker-than-usual forward guidance.  In Q1, there were 120 total pre-announcements, with 78 negative and 32 positive—resulting in a negative-to-positive (N/P) ratio of 2.4x (Exhibit 2). This exceeds the prior four-quarter average of 2.1x and suggests a more cautious tone from management teams.  Importantly, many companies noted during Q4 earnings calls that Q1 guidance does not yet reflect the impact of proposed tariffs. This omission adds a layer of uncertainty for analysts and investors, complicating efforts to accurately model earnings trajectories–a trend that is likely to continue in Q1.  We may find companies withdraw guidance altogether or widen the range of guidance provided to account for heightened uncertainty.  Another question will be whether companies use this quarter to recalibrate expectations (i.e. a clearing event) for the rest of the year.

The Magnificent-7 are still expected to play a large role in Q1, but the trend is pointing towards a relative rotation into the S&P 493 (Exhibit 6).  Five of the seven companies are in the top 10 list of companies expected to drive earnings growth in Q1–Nvidia, Amazon, Microsoft, Apple, and Meta Platforms.  As a group, they are expected to contribute 45% of the net earnings growth in Q1.  Notably, Mag-7 earnings (+18.3%) are expected to outpace S&P 500 earnings by smallest margin since 2023 Q1. The forward four-quarter P/E for the group is currently 23.8x–the lowest in three years.

Heading into 2025, US markets were priced for near perfection, with the forward P/E multiple reaching 22.3x.  The multiple has since contracted to 18.5x, ranking in the 78^th percentile historically (Exhibit 7).  For reference, the trough forward P/E during the last four recessions were as followed: 10.1x (Oct 1990), 17.3x (Sept 2001), 8.9x (Nov 2008), and 13.0x (March 2020).  What’s notable is that this de-rating has been largely driven by the ‘P’ rather than the ‘E.’ Forward 12-month EPS estimates have remained relatively stable, while prices have fallen sharply year-to-date—leading to meaningful multiple compression across global equity markets.

Net profit margins reached an all-time high last quarter (12.2%) and are expected to decline to 11.6% in Q1, marking a reversal after five quarters of improvement. Most sectors have seen downward revisions to margin forecasts—excluding Health Care and Technology—with Materials, Real Estate, and Industrials experiencing the most significant cuts (Exhibit 8). This will be a critical data point as tariff policy evolves. Rising input costs force a strategic decision: either absorb the inflation and compress margins or pass pricing through to end consumers. In a more adverse macro scenario, margin compression could be exacerbated. Slowing economic growth would dampen top-line revenue while operating leverage and tariff pressures weigh simultaneously on profitability.

The StarMine Predicted Surprise (PS%), which measures the difference between the SmartEstimate (a weighted average emphasizing timely and historically accurate analysts) and the consensus estimate, has shown strong predictive power. When PS% is greater than +2% or less than -2%, it correctly forecasts the direction of the earnings surprise approximately 70% of the time (Exhibits 9 & 10). The PS% can be a valuable tool for investors looking to anticipate earnings surprises and avoid being caught off guard by unexpected misses or beats.

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Exhibit 1: 2025 Earnings Growth by Quarter

Exhibit 2: Q1 2025 Pre-Announcements

Exhibit 3: Estimate Revisions Heading into Earnings Season

Exhibit 4: Q1 2025 Revisions by Sector

Exhibit 5: Q1 2025 Revisions by Company

Exhibit 6: Magnificent-7 Earnings Growth Rate

Exhibit 7: S&P 500 Forward P/E

Exhibit 8: S&P 500 Net Profit Margin

Exhibit 9: StarMine Predicted Surprise – Positive Candidates

Source: LSEG Workspace, LSEG StarMine

Exhibit 10: StarMine Predicted Surprise – Positive Candidates

Source: LSEG Workspace, LSEG StarMine

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