Earnings Air Pocket Ahead?

Amidst a heightened period of noise and distraction, parsing the incoming data for genuine signals is critical.

The chart below, monitoring the evolution of forward earnings expectations, has our attention.

In short, this corporate America earnings cycle had been closely following the purple line, illustrating the typical path for S&P corrections of -10% that are not accompanied by recession within 12 months.

However, since ‘Liberation Day’, forward earnings estimates have begun a sharp descent, and the trajectory is beginning to resemble that of the teal line, denoting typical prior S&P corrections of -10% that have been accompanied by a recession within 12 months.

Analysts now expect approximately +8% aggregate EPS growth for the S&P in 2025 against +12% at the beginning of this year. Whilst this can be considered a reasonable (re)adjustment, the updated figure remains broadly in line with average annualised growth for the S&P since 2010.

A darkening mood and strong rhetoric amongst CEO’s during conference calls so far suggests the ongoing tariff tit-for-tat is creating considerable uncertainty around margin sustainability, business investment, and strategic planning.

Against this backdrop, this chart is worth paying attention to. EPS developments over the coming days and weeks will likely have a meaningful impact on the path for asset prices for the remainder of 2025:

H/T: 3Fourteen Research