After the busiest week of earnings releases, almost three-quarters of companies have released results. 76% of S&P 500 firms reported better-than-expected earnings for the quarter. This earnings season slows this week, with 93 S&P 500 companies scheduled to report. In addition to earnings, the Federal Reserve (Fed) meets on Wednesday.
Earnings At A Glance
According to FactSet data, the healthcare, consumer discretionary, communication services, and technology sectors contributed most positively to last week’s earnings growth improvement.
Combining actual results with consensus estimates for companies yet to report, the S&P 500’s blended earnings growth rate for the quarter is 12.8% year-over-year, above the 7.2% expectations at the end of the quarter. Notably, the expected earnings and sales growth rates for calendar years 2025 and 2026 have declined despite the better-than-expected first-quarter results so far.
Market Performance
Better tariff news combined with strong earnings sent stocks higher by 2.9% last week. After this week’s rally, the S&P 500 sits 7.5% below its mid-February high. The Magnificent 7, consisting of Microsoft (MSFT), Meta Platforms (META), Amazon.com (AMZN), Apple (AAPL), NVIDIA (NVDA), Alphabet (GOOGL), and Tesla (TSLA), outperformed last week. The group is 17% below the mid-December all-time high.
Magnificent 7
Because these companies are critical drivers of earnings growth and account for a significant percentage of the S&P 500’s market capitalization, the Magnificent 7 remains the group to watch this earnings season. Microsoft (MSFT), Apple (AAPL), Meta Platforms (META), and Amazon.com (AMZN) reported last week, and all but Amazon outperformed expectations. While Amazon came up short, the earnings pace was robust, and the stock was still higher for the week.
Four of the Magnificent 7 are scheduled to report results this week: Microsoft (MSFT) and Meta Platforms (META) on Wednesday; Apple (AAPL) and Amazon.com (AMZN) on Thursday. Nvidia (NVDA) is the last of the magnificent 7 stocks yet to report and is not expected until the end of May.
Beyond the Magnificent 7, this week of the reporting season has some notable companies scheduled, including Clorox (CLX), Uber Technologies (UBER), Emerson Electric (EMR), and Walt Disney (DIS).
Earnings Insights By Sector
According to FactSet data, the healthcare, consumer discretionary, communication services, and technology sectors were the most significant contributors to the increase in earnings. It was a broad-based improvement in earnings as every sector except energy saw better earnings growth rates last week.
Revenue Results By Sector
Sales growth is closely tied to nominal GDP growth, which combines after-inflation economic growth (real GDP) with inflation. At this early point in the earnings season, sales growth at 4.8% is above the 4.4% expectations. The technology sector is expected to provide the most robust revenue growth.
Are We Already In A Recession?
As discussed in a previous piece, a surge in imports was a massive headwind to GDP growth. Net exports were a whopping 4.8 percentage point drag on the economy. According to Goldman Sachs, this is the most significant drag from net exports on record as companies raced to import goods to avoid the coming tariffs.
Due to the trade distortion, final sales to private domestic purchasers are a better measure to watch, and they continued to perform well at 3% growth. This measure excludes the impacts of trade, inventories, and government spending, so it does a better job of measuring the activity of the U.S. private sector.
Monthly nonfarm payrolls grew by an above-consensus 177,000 jobs, and the unemployment rate held steady at 4.2%. Despite the 58,000 downward revision of payroll jobs over the previous months, the monthly jobs report has to be considered solid.
The GDP report, especially when combined with the monthly jobs growth, does not signal an imminent recession despite the -0.3% decline in headline economic activity. This does not mean that we won’t eventually see more economic slowing due to tariffs, but this isn’t it yet. Consumer spending did moderate somewhat, so it is still fair to say the economy was softening a bit even before the tariff impact.
What To Watch This Week
Markets will remain very attuned to newsflow around the tariffs since the size and duration of the tariffs impact the extent of the economic growth headwind. Beyond tariffs, the big event will be the Federal Reserve meeting on Wednesday. Markets expect no rate changes from the Federal Reserve, especially after the better-than-expected jobs report. The focus will be on Chair Powell’s comments and whether June is a likely time to lower rates again.
Despite the negative GDP results for the first quarter, the economy is not in a recession. This view is further bolstered by the better-than-expected job growth reported last week. The Berkshire Hathaway (BRK/A, BRK/B) annual meeting and first quarter earnings release on Saturday were eventful. Warren Buffett shocked the crowd with the announcement that he plans to resign from his role as CEO of Berkshire Hathaway at year-end.
Disclosure: Glenview Trust holds many stocks mentioned in this article within its recommended investment strategies.
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