Investing & Performance | 29 July 2025
Q2 earnings season preview – modest expectations set the stage
Trade policy uncertainty has lowered the bar coming into this earnings season. But a resilient US economy and ongoing adoption of artificial intelligence (AI) could allow earnings to surprise on the upside.
The second earnings season of 2025 is underway and so far results are beating relatively low expectations. Numerous US banks’ performances were above expectations in Q2 following buoyant trading and investment banking activity during the period.
Many other sectors are yet to report their earnings for the quarter, however, this outperformance by US banks signifies the strength of the US economy despite concerns surrounding America’s trade policy.
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.
Conservative forecast
Earnings season is an opportunity for companies to report on how their businesses performed for the previous quarter while also providing insight as to what might drive their performance in the future.
In Q1, US earnings grew by 12% year on year, beating expectations of 6% growth. Forecasts for the more recent quarter were revised down to 4% as the tariff announcements in April, and slowing growth, reduced the outlook for profitability.
Having already announced their earnings, several major US banks reported upbeat figures and stated that consumers were in good health despite economic uncertainty.
AI in focus
Technology will be a sector investors watch closely. Despite economic growth slowing, technology innovation is still advancing – particularly in the US.
More companies are adopting AI within their business strategies which could help with improving efficiency and reducing costs. Companies that are enabling AI and those utilising the technology could provide optimistic outlooks once they provide their announcements later this quarter.
our view
A number of US banks have beaten expectations already and provided a fairly upbeat assessment of the US consumer. These announcements coincide with a declining unemployment level which was down to 4.1%, according to the US Bureau of Labor Statistics.
Given the state of the US economy and consumer, we believe the consensus of 4% earnings growth is a low bar for equities to beat. Moreover, the dollar has been weakening over the period which should have a positive impact on large companies with high international earnings.
While this could be positive news, investors will also be watching closely to see how companies plan to manage the increased costs imposed by tariffs; whether they look to absorb these increased expenses or pass them on to consumers.
AI’s opportunity for growth
The adoption of AI has surged since the turn of the year – but how much further could it go? As of June 2025, approximately 9% of US businesses incorporate AI within their strategies. This is up from roughly 6% at the beginning of the year, and 4% in the latter stages of 2024, as detailed in the graph below.
Interestingly, there has been an acceleration in adoption since the start of the year, but it remains low. This suggests there is some way to go for the full productivity benefits of the technology to be felt. This could bode well for the earnings outlook for companies that enable or use artificial intelligence.
Regarding our client portfolios, we hold a modest overweight position in global equities with a preference for the US and Japan. We see prospects for ongoing earnings growth in both regions, which should support returns. Although slowing economic growth and tariff uncertainty remain risks we’re watching closely, for now, we feel the outlook should support equity markets.
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