Investing & Performance | 23 May 2025

earnings season: strong start to a volatile year

US stocks’ solid first earnings season of 2025 sets them in good stead ahead of tariff impact.

A healthy number of companies beat earnings estimates in the first quarter of this year. But uncertainty surrounding the impact US tariffs could have on businesses has clouded the outlook.

Q1 company earnings season is an opportunity for corporations to report how their businesses have performed for the previous three months. This earnings season is of extra importance as it’s the first time these businesses can show how they’ve performed ahead of US President Donald Trump’s ‘Liberation Day’, and provide forecasts for the remainder of 2025.

All US sectors delivered net beat position

At the time of writing, 90% of US companies had reported, and 77% of them had beaten earnings estimates.

Particularly strong profits from healthcare, technology and communication services meant overall earnings growth for the quarter was 12% for the region, double what was expected.

Past performance should not be taken as a guide to future performance. The value of investments, and the income from them, can fall as well as rise and you may not get back what you put in. You should continue to hold cash for your short-term needs.

Tariffs taking their toll

These reports have coincided with announcements by the US to roll out tariffs against key trading partners which resulted in market volatility. This environment meant the negative market reactions to stocks missing earnings estimates were even greater than usual.

While companies report their revenues during earnings season, it’s also an opportunity for them to provide their outlook for the subsequent months to set expectations. Given that tariffs have created trade frictions and uncertainty, many companies withheld giving too much detail on how they expect to perform in the coming months.

Some areas of the market have chosen to revise guidance, such as large consumer goods companies which have lowered their forecasts due to concerns about rising costs and lower consumer spending. This will likely set a low bar for next quarter’s earnings season.

Mixed bag for Europe and UK

More European stocks surpassed expectations than expected, with 62% beating estimates. That said, earnings growth has fallen year on year by 2%, with energy and consumer discretionary sectors dragging down the overall performance.

Only 31% of energy stocks and 22% of discretionary stocks beat estimates whereas healthcare and financials surpassed targets by 83% and 79%, respectively.

The industrial sector saw 59% of companies beat estimates – just shy of the season’s average in Europe. While the sector is likely to feel some impact of tariffs, commentary from their announcements suggests that the situation is manageable and mitigation action is, or will be, taken when necessary.

our view

As the disruption of tariffs on company performance begins to surface, the outlook on stocks still includes a noticeable amount of uncertainty. Trade discussions are ongoing and therefore both investors and companies are still trying to navigate the full impact.

However looking from a more macro level, economic data paints a less pessimistic picture. In the US, unemployment levels remain low, wages are growing and inflation continues to trend down.

Therefore, even if US company revenues are hit by the added costs caused by tariffs, demand for their goods and services should continue to stay at healthy levels. It’s worth reiterating that US earnings grew by 12% for the last quarter, beating expectations by 6%. This suggests that companies could be in a strong position to absorb some of these shocks.

We are overweight global equities in our portfolios given this backdrop, but are aware of the increased risks tariffs could have on the US economy and markets. As such, we have recently reduced our exposure to the US but remain overweight.

Replacing this allocation, we have invested in more Japanese government bonds which may provide protection should economic growth slow further this year.