Takeaway #1
Starting with takeaway #1: Earnings sentiment Is holding at non-crisis lows for now
We are still in the middle of the busiest stretch of S&P 500 earnings releases for calendar 1Q25.
Here are some of the things jumping out to us on the stats:
- First, companies beating consensus are still outperforming in terms of immediate price reaction, while those missing are underperforming. Those beating consensus are actually outperforming in terms of immediate price reaction a bit more than they usually do.
- Second, the bottom-up consensus 2025 EPS forecast for the S&P 500 has stabilized around $265. That stat (which had been sitting comfortably above $270 for most of calendar 1Q) has been falling in recent weeks.
- Third, the rate of upward EPS estimate revisions to consensus S&P 500 EPS forecasts fell to 28.5% last week, in line with the lows of 2012 and 2016. This is often the bottom in a non recession or crisis period of downward revisions. In a more dire scenario, it typically heads to the 10-20% range.
“Companies beating consensus are still outperforming in terms of immediate price reaction, while those missing are underperforming.”
Lori Calvasina, Global Head of Equity Strategy, RBC Capital Markets
Takeaway #2
Moving on to Takeaway #2: We were drinking from a firehose of earnings last week
We spend a lot of time during reporting season reading through earnings call transcripts, looking for macro insights. What we read last week (limited to S&P 500 earnings calls held Monday through Thursday) continues to keep us in the camp that recession is not a foregone conclusion, but also adds to our concern that investors have gotten too worried about the near term and not worried enough about the intermediate-to-longer term. We also think there are two different perspectives at play on the consumer, which may be adding to investor confusion. We exited the week seeing managing tariff impacts as a work in progress, but with a greater appreciation of the work that has been done.
Digging into the details a little more:
- Trying to get through last week’s transcripts truly felt like trying to drink from a firehose, not just because there were so many companies that reported, but because companies finally provided detailed commentary on tariff exposures and sensitivities and began the process of adjusting guidance to account for the policy change. We’ve been open about our desire for companies to be more forthcoming in their discussions of tariffs in recent months. Recognizing that we’re getting exactly what we asked for, we will acknowledge that it is going to take some additional time for us, the sell-side broadly, and the buy-side, to digest the information we’re finally getting.
- On the macro, companies tended to rely on words like uncertain, volatile, dynamic, softening, and conservatism. Some noted they are modeling multiple scenarios, or are shifting to quarterly guidance from annual guidance. Companies varied in terms of whether and to what extent they are baking tariffs into guidance. Several alluded to the idea that they hope to gain more clarity and certainty over the next 90 days. Overall, it felt to our team like the tone wasn’t as bad as many expected given how challenging financial market conditions have been recently and how weak sentiment surveys have been coming in.
