S&P 500 Earnings Forecasts Show Steady Growth Amid Sector Shifts
Note: The following is an excerpt from this week’s earnings Trends report. You can access the full report that contains detailed historical actual and estimates for the current and following periods, please Click here>>>
Here are the key points:
- Total 2025 Q1 earnings for the S&P 500 index are expected to rise +5.9% compared to the same period last year, accompanied by +3.9% higher revenues. This follows a previous period’s +14.1% earnings growth on +5.7% revenue growth.
- Since the quarter began, Q1 earnings estimates have steadily declined, with the current expected growth pace of +5.9% down from +10.4% at the start of January 2025.
- For the full calendar year, total S&P 500 earnings are projected to achieve a +9.6% growth in 2025, with 12 out of 16 Zacks sectors anticipated to report positive earnings growth. Sectors including Aerospace (+53.3%), Consumer Discretionary (+19.4%), Medical (+17.2%), and Tech (+12.1%) are expected to see double-digit growth.
- For the Magnificent 7 group, total 2025 earnings are projected to increase by +12.6% with revenues rising +9.3%. Excluding contributions from the Magnificent 7, remaining S&P 500 companies’ earnings are expected to grow +8.7% in 2025, which shows improvement compared to +4.0% growth in 2024 and a -5.1% contraction in 2023.
The Magnificent 7 Faces New Challenges
Recent losses among the Magnificent 7 stocks have prompted market concerns. A significant factor is the rising capital outlays that the group faces, particularly highlighted by the DeepSeek breakthrough.
The chart below illustrates the year-to-date performance of these stocks against the S&P 500 index:
Image Source: Zacks Investment Research
Among the group, Meta Platforms (META) is the only stock nearing positive territory, outperforming the S&P 500 index, which is down -4.4%. In contrast, Tesla (TSLA) has seen a significant decline, losing approximately a third of its value.
The remaining Magnificent 7 stocks are mixed, with Nvidia (NVDA) and Alphabet (GOOGL) trending lower, while Microsoft (MSFT), Amazon (AMZN), and Apple (AAPL) are in a better position.
While some attribute Tesla’s struggles to CEO Elon Musk’s political activities, fundamental factors such as the company’s reliance on the Chinese market, trade issues, and increased competition in the EV sector also influence its performance. Apple shares similar vulnerabilities tied to China and trade dynamics.
The outlook for the other five group members largely hinges on the sentiment surrounding artificial intelligence. The stocks associated with this theme have faced recent headwinds, as their substantial investments may have raised market apprehensions.
2025 Earnings Expectations for the Magnificent 7
Last year, the Magnificent 7 group’s dominance was fueled by robust earnings and a strong growth forecast, which saw analysts consistently raise their estimates. However, the current earnings outlook has dimmed compared to previous periods.
Looking ahead to Q1 2025, Mag 7 earnings are projected to grow by +13.1% with +11.7% increased revenues, a decline from the prior period’s +31.0% earnings growth and +12.8% revenue growth.
For the full year of 2025, Mag 7 earnings are expected to rise +12.6%, supported by +9.3% higher revenues. This continues a trend from 2024, where the group saw +40.4% earnings growth and +16.8% in revenue growth. In total, the Magnificent 7 is estimated to contribute $555.7 billion in earnings, increasing from the 2024 total of $493.7 billion. The chart below depicts the trend in aggregate earnings expectations for 2025:
Image Source: Zacks Investment Research
This chart illustrates the recent stabilization of earnings estimates for Tesla, Apple, and Meta, while the rest of the Magnificent 7 maintains a more positive outlook.
Tech Sector: A Consistent Growth Engine
The Tech sector has consistently driven growth in recent quarters, and this trend continues into Q1 2025. Tech sector earnings are set to increase +12.6% from last year, alongside +10.6% higher revenues. This marks the seventh consecutive quarter of double-digit earnings growth.
This follows a remarkable +26.2% earnings growth and +11.3% revenue growth in Q4 2024. The growth momentum is expected to persist in the upcoming quarters, as shown in the chart below:
Image Source: Zacks Investment Research
The Tech sector has also shown one of the most favorable earnings outlooks, which has contributed to its critical role in overall market performance.
Q1 2025 Earnings Estimates Show Broad Sector Revisions
The outlook for Q1 2025 earnings estimates has been evolving steadily over the past year. However, recent data indicates a shift in this trend. Since January, Q1 estimates have faced modest downward pressure, although expectations for the full year of 2025 remain optimistic. The chart below illustrates the aggregate earnings estimates for the sector in 2025.
Image Source: Zacks Investment Research
Overview of the Earnings Landscape
The subsequent chart displays expectations for Q1 2025, contrasting these with the results achieved in the prior four periods, alongside projections for the next three quarters.
Image Source: Zacks Investment Research
Total S&P 500 earnings for the current quarter (Q1 2025) are anticipated to rise by +5.9% compared to the same quarter last year, driven by a +3.7% increase in revenues. This suggests resilience despite the ongoing adjustments in projections.
As illustrated in the chart below, estimates for this period have been declining since the quarter began.
Image Source: Zacks Investment Research
The trend of downward revisions is widespread, affecting 14 out of 16 sectors since early January. Only the Medical and Construction sectors have seen increases in their estimates. The most significant cuts have occurred in sectors like Conglomerates, Aerospace, Basic Materials, and Autos. Interestingly, the Tech sector has also faced pressure for the first time in recent periods.
The following chart provides a broader view of the annual earnings expectations.
Image Source: Zacks Investment Research
As shown, there’s optimism for double-digit earnings growth over the next two years, with the number of sectors anticipated to experience strong growth significantly increasing from recent trends. However, it’s essential to remain cautious as these forecasts are likely to be revised downward due to decelerating U.S. economic growth and the impact of tariffs on corporate profitability.
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This article was originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
