Earnings season tracker: Surprising strength—but the storm isn't over yet

Key points:

• US companies have delivered stronger-than-expected earnings, supported by resilient tech and healthcare.
• Cautious company guidance signals continued uncertainty ahead due to tariffs, economic concerns, and cost pressures.
• Investors should stay balanced and informed, closely watching trade developments, corporate forecasts, and broader economic indicators.

Despite widespread fears around tariffs and recession, US corporations have impressed investors this earnings season, surpassing even the most optimistic forecasts. Yet investors shouldn’t celebrate too soon—the threat of economic storms hasn't fully passed.

Corporate America defies gloomy predictions

Analysts had braced for disappointment as companies faced mounting tariff pressures and economic uncertainty. Yet, with 72% of the S&P 500 companies now reported, 76% have delivered earnings that exceeded expectations, according to FactSet. The overall earnings per share (EPS) growth rate for the first quarter stands at 12.8% year-on-year, significantly above initial estimates of around 7.2%. Impressively, this marks the second consecutive quarter of double-digit earnings growth and the seventh straight quarter of positive earnings growth. Stronger-than-expected profit margins have been a key driver behind these impressive results.

“This earnings season has given investors clear skies instead of storms—but don’t put the umbrella away yet.”

Tech and healthcare power ahead

Technology giants like Microsoft, Alphabet, and Meta have delivered reassuring results, powered by strong cloud business and AI-driven investments. Microsoft’s Azure division thrived despite trade tensions, and CEO Satya Nadella highlighted software’s resilience, calling it “the most malleable resource we have to fight inflationary pressure”.

Yet caution remains: Apple notably anticipates a USD 900 million rise in tariff-related costs this quarter, highlighting precisely why investors shouldn’t relax just yet—the full impact of tariffs might still unfold.

Healthcare similarly has sparkled, with 90% of companies exceeding earnings expectations. Energy and industrial stocks, however, have struggled significantly, highlighting the uneven nature of this earnings recovery amid tariff pressures and global trade anxieties.

Europe tells a mixed story

Earnings across Europe's STOXX 600 companies have exceeded expectations overall, but aggregate earnings still declined slightly, down approximately 1.7% year-on-year. However, that is better than the roughly -3% expected just some weeks ago. Revenue growth has also been modest, rising only about 1.4%. Roughly 60% of European firms are beating analyst earnings estimates—somewhat below the US rate of 76%.

Sectors highly sensitive to global trade, such as automotive and luxury goods, faced sharper downward revisions, reflecting deeper impacts from tariffs and weaker international demand. For example, Volkswagen experienced nearly a 40% profit decline due to US tariffs and slowing Chinese demand. In luxury goods, firms like LVMH and Kering have encountered softer sales, as cautious consumers proved resistant to price hikes prompted by tariff-driven cost increases.

European CEOs frequently highlighted uncertainty linked to tariffs and trade policy in recent earnings calls. Nonetheless, sentiment remains constructive in select sectors, such as banking and technology, which delivered resilient results.

“Europe’s earnings season delivered modest growth and encouraging signs—but investors should stay selective due to lingering uncertainties.”

Guidance and analyst revisions will set the tone going forward

Corporate guidance this earnings season clearly reflects heightened uncertainty around tariffs and economic prospects. The proportion of companies providing forward guidance for the next quarter is somewhat below average, whereas nearly half have provided full-year guidance, broadly in line with historical norms.

Notably, a larger-than-usual share of these firms chose to maintain their existing full-year forecasts rather than revising them, highlighting corporate hesitancy amid unclear tariff policy impacts. Some management teams explicitly stated that their current forecasts exclude the potential effects of recent tariffs, underscoring uncertainty about future profitability.

For instance, prominent companies like Apple and Amazon have explicitly warned investors about escalating costs from tariffs, uncertain consumer spending patterns, and softer demand in key international markets like China. Additionally, firms like Delta Air Lines withdrew full-year guidance entirely, citing opaque demand outlooks and tariff-related uncertainties.

While corporate caution may align with historical averages, analysts have reacted strongly by aggressively cutting earnings-per-share estimates for both the second and third quarters of 2025, primarily due to lower margin expectations. Currently, 56% of companies that issued full-year guidance have set forecasts below analyst consensus—an above-average proportion. Given this dynamic, investors should brace for further downward revisions as analysts realign their expectations to match the realities of an uncertain economic and trade environment.

"Corporate caution remains relatively normal, but analysts’ sharply reduced expectations highlight growing market unease around tariffs and economic uncertainties. Investors should prepare for continued volatility as forecasts adjust further in coming months."

Key themes to track for investors

Given the current backdrop, investors should carefully monitor these critical factors:

• Tariff impacts: Closely follow sectors reliant on global trade, particularly automotive, consumer electronics, luxury goods, and materials, where sustained or escalating tariffs could increasingly squeeze profit margins.
• Currency fluctuations: A weaker USD generally boosts profits for US multinational corporations by making exports more competitive internationally, whereas Europe’s relatively strong euro poses a challenge by pressuring exporters’ profit margins despite potentially supporting purchasing power.
• AI investment returns: Evaluate carefully whether Big Tech’s substantial AI-related investments translate into sustainable profit growth, or if they're spending excessively before profits catch up.
• Inventory and consumer spending trends: Rising inventories could indicate slowing consumer demand, signalling potential margin pressures ahead. Monitor consumer sectors like retail, apparel, and electronics closely.
• Wage and input cost pressures: Persistent wage inflation, particularly in labour-intensive sectors such as hospitality, retail, and healthcare, could pose further risks to profitability if companies struggle to pass these higher costs onto consumers.

How investors should approach the months ahead

As investors look towards the coming months, it’s clear this earnings season has provided reasons for cautious optimism, yet also highlighted areas of concern. The strength in corporate profits, particularly in sectors resilient to economic uncertainty, is encouraging. However, caution remains necessary as tariffs, cautious corporate guidance, and mixed economic signals continue to create uncertainty.

Going forward, investors might consider closely monitoring company guidance, evolving trade developments, and broader economic indicators. Embracing a balanced approach and maintaining flexibility could help navigate potential market volatility. In short, staying informed and prepared for shifts will be key in effectively responding to whatever the markets may bring next.

As this earnings season demonstrates, clear skies today don’t guarantee sunny weather tomorrow. Investors should enjoy the current optimism—but keep that umbrella close.