With JPMorgan expected to report earnings on July 15, the Q2 2025 earnings season is set to officially kick off. While most S&P 500

companies are scheduled to release their results between late July and early August, the current period marks a crucial window to assess

earnings trends, market expectations, and the impact of macroeconomic disruptions.

Based on current market consensus, shifts in analyst forecasts, and sector developments, the upcoming Q2 earnings season is expected to

reflect a combination of downward revisions, pronounced sector divergence, and persistent risk factors.

Earnings May Easily Beat Expectations

As of June 2025, market expectations for S&P 500 earnings growth in the second quarter have been significantly revised downward.

According to FactSet data, the current consensus points to year-over-year growth of 4.9%, well below the 9.3% expected at the beginning of

the year. Excluding the energy sector, overall earnings growth could even turn negative.

Source: FactSet

This downward revision is primarily driven by more cautious forward guidance from corporate management, continued earnings estimate

cuts by analysts, and mounting margin pressure from tariffs implemented in April and June.

However, as seen in the first quarter, sharply lowered expectations may once again raise the likelihood of earnings “beats.” In Q1 2025,

about 80% of S&P 500 companies exceeded earnings expectations, with actual growth ultimately revised up from an initial 7.2% to around

13.3%.

Given the relatively low earnings bar for the second quarter, the market may once again see the upside surprise effect of “expectation

management.” The final actual growth rate for Q2 could still reach the 8%–10% range.

Sector Performance Will Diverge

Earnings growth this quarter is expected to remain highly uneven across sectors. Information Technology and Communication Services will

be the primary drivers of overall growth. Based on current forecasts, the tech sector is projected to post year-over-year earnings growth of

approximately 16%, while Communication Services is expected to grow by about 30%. Industry leaders such as NVIDIA, Microsoft, Apple,

and Broadcom continue to show robust momentum under the ongoing AI boom. NVIDIA, in particular, is expected to post more than 50%

year-over-year revenue growth this quarter and may once again raise its full-year guidance.

Within the Communication Services sector, Warner Bros. Discovery is still expected to report a net loss, but due to a low year-ago base, the

loss will likely narrow significantly—providing some lift to the sector's overall growth.

By contrast, the Energy sector is projected to significantly drag down overall S&P 500 earnings performance in Q2. Hit by both a pullback in

global oil prices from recent highs and weakening demand momentum, energy company profits are forecast to decline by more than 25%

year-over-year. According to the U.S. Energy Information Administration (EIA), the average Brent crude price in Q2 2025 stands at $75 per

barrel—slightly below last year’s level. With tough year-over-year comparisons and inventory-related headwinds, both revenues and margins

across the sector are under pressure.

In addition, expectations for future capital expenditures and shareholder returns in the sector have been revised lower, leaving valuations

with little upward support. While escalating tensions in the Middle East recently pushed oil prices above $78 per barrel, markets have since

retraced. As of June 24, following President Donald Trump’s unilateral announcement that Israel and Iran had reached a full ceasefire

agreement, both WTI and Brent crude prices retreated below $70. This underscores the ongoing uncertainty around geopolitical risk

premiums in energy markets.

Source: TradingView

Guidance Risk Rising

The biggest risk heading into the Q2 earnings season remains corporate guidance. By the end of the Q1 2025 earnings cycle, over 60% of

S&P 500 companies had issued earnings outlooks for Q2 that fell short of consensus expectations—particularly in cyclical sectors such as

retail and autos. As the second quarter unfolds, the latest round of U.S. tariffs continues to take effect, and companies are still contending

with elevated input costs and unstable supply-demand dynamics. Negative forward guidance may again dominate earnings commentary this

season.

Investor expectations for second-half earnings are already being recalibrated. Back in March 2025, Goldman Sachs lowered its full-year EPS

growth forecast from 9% to 7%, cutting its year-end EPS target from $268 to $262.

Source: Goldman Sachs

In comparison, FactSet currently projects full-year earnings growth of 9.0%. A notable divergence remains between “top-down” and

“bottom-up” estimates: the former predicts 2025 and 2026 EPS at $268 and $288, respectively, while the latter expects $274 and $308.

This highlights the ongoing tension between analyst optimism and the more cautious tone coming from corporate management.

Compounding these challenges is a murky macroeconomic backdrop. Beyond the evolving impact of trade policy, markets must also

contend with elevated interest rates, weak consumer spending, and a sluggish manufacturing recovery. In particular, softening leading

indicators—such as retail sales and the ISM Services Index—suggest rising pressure on corporate profit margins.

Meanwhile, valuations continue to expand. As of mid-June 2025, the S&P 500’s forward 12-month P/E ratio had climbed to 21.6x—well above

the 5-year (19.9x) and 10-year (18.4x) averages. On a trailing basis, the P/E ratio stands at an elevated 25.9x. With earnings expectations still

being revised lower, the current rich valuations lack strong fundamental support. This raises the stakes for companies to deliver results that

justify their price tags, increasing investor sensitivity to earnings surprises and guidance.

Final Thoughts

Despite pressure on earnings expectations and rising macro risks, the overall market continues to show a degree of resilience. During the Q1

2025 earnings season, companies that beat expectations saw their stock prices rise by an average of 1.9% around earnings releases, while

those that missed fell by -1.9%—both outcomes better than the five-year average. This suggests that the market remains biased toward

names with solid fundamentals and earnings delivery.

Looking ahead, corporate earnings growth for 2026 is still widely expected to accelerate into the mid-teens range. However, this growth

trajectory is contingent on several key factors: stabilization in trade policy, tangible returns on AI-related investments, and an improving

interest rate environment.