Defying analysts’ calls, S&P 500 delivers second straight quarter of double-digit earnings growth
Despite analyst growth concerns, S&P 500 companies posted a blended earnings growth rate of 12.9%—nearly double the 6.5% projected as of March 31. An impressive 78.2% of S&P 500 firms outperformed analysts’ expectations, surpassing the long-term average of 74.6%. This trend was consistent across industries, with all 11 sectors reporting positive earnings surprises (those that exceed forecasts), reinforcing the market’s recent strength.
Chart Check: S&P 500 Q1 2025 Much Better than Forecasted
Our Take
Calling the Q1 earnings release a “pleasant surprise” would be an understatement. Despite ongoing concerns, S&P 500 companies marked their second consecutive quarter of double-digit earnings expansion. What’s especially encouraging is the broad participation in earnings surprises, which had been missing in previous years, demonstrating that there’s more to the S&P 500 than just the Magnificent Seven.
Looking forward to Q2, analysts currently project a measured but strong 9.2% growth rate. Assuming analysts are again too conservative, a third straight quarter of double-digit earnings growth is possible.
Economic Recap
Disinflation Continues: Inflation continues to trend towards the Fed’s 2.0% target. The May Core CPI report continued the trend seen over the past three months, with each print at its lowest level since March 2021. The data has yet to confirm the widespread concern that tariffs would force broad price increases. While goods prices have modestly increased, possibly reflecting a tariff impact, service prices remain in a downward trend, partially due to a data measurement lag in shelter prices. The broad takeaway is that while some categories will be affected by trade policies, fears of a broad return of inflation have yet to materialize in the U.S. economy.
Core Inflation Continues to Fall
Labor Market Irrepressible: Despite fears of impact from AI and immigration reform, the U.S. labor market remains remarkably stable. Job growth has averaged a healthy 135,000 over the past three months. A stable labor market and steady inflation environment can open the door for the Federal Reserve to lower interest rates later this year. The recent escalation in the Middle East could also be something to watch if it leads to higher energy prices.
Unemployment Rate Well Below 10-Year Average
Economic Data
Market Recap
S&P 500 Reaches All-Time High: After suffering a near 20.0% drawdown earlier this year, the S&P has finally exceeded its February all-time high – largely fueled by a stellar earnings season and less policy uncertainty. Many companies delivered blowout results, shifting investor focus away from trade-related fears and driving renewed market optimism. Momentum has been broad-based, with 6 of 11 sectors now within 2.0% of their record levels. Notably, Industrials, Utilities, and Communication Services, and Technology have already surpassed their February peaks, reinforcing the strength. Despite the impressive recovery, only two sectors have reached an all-time high yet – a sign that this rally may continue.
Last Four Months: A Tale of Two Swings
Crude Oil Spikes on Geopolitical Fears: Oil futures spiked on renewed geopolitical concerns in the Middle East, marking a sharp reversal after months of depressed pricing. After falling below $60 a barrel in early May, West Texas Intermediate (WTI) prices moved into the mid-$70 range in mid-June, which is in line with that commodity’s five-year average. However, following the conclusion of the “Twelve Day War”, WTI fell 12%, roughly to the same level as before the conflict began. Perhaps this serves as an example of a well-known investment principle: historically, markets have tended to show resilience in times of regional conflicts, with the S&P 500 typically showing gains a year after peaks in geopolitical risks. Additionally, if conflicts flare up and oil spikes again, it could provide support for the U.S. Dollar, and therefore U.S. assets relative to their international counterparts.
WTI Crude Jumps, Bullish for the Dollar
Market Data
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