#MicroFriday: Markets Price in Another Year of Strong Earnings Growth for S&P 500 Companies in 2025

The second half of January is here, which means that results season is starting. In the last few days, several large American financial institutions have already published their fourth-quarter results, reporting earnings well above consensus expectations. Banks, in particular, saw their profits rise and indicated growing optimism among investors and CEOs since the US elections.

Analysts, however, have set a high bar for S&P 500 companies. They expect these companies to have increased their earnings by 8.9% in 2024, led by Financials, Communication Services, and Technology sectors. In contrast, negative earnings growth is expected in Energy, Materials, and Industrials. Looking ahead, analysts predict earnings will rise by an additional 14,2% in 2025 and 13.9% in 2026.

Last year’s equity performance of the S&P 500 was not matched by earnings growth. As a result, the strong performance led to an expansion of valuation multiples. In this context of high equity valuations, companies have little room to fall short of expectations, as this could lead to significant (negative) price swings. While the US economy shows no signs of cooling, it remains uncertain whether companies can meet the high earnings growth expectations.