Market Watches Q1 Earnings Amid Tariff Uncertainty and Financial Reports

Investors are keenly observing the Q1 reporting cycle that began with quarterly earnings from JPMorgan (JPM), Wells Fargo (WFC), Morgan Stanley (MS), and others last Friday. This cycle is particularly important as the market grapples with broader economic uncertainties stemming from tariff-related concerns.

The focus on tariffs is warranted, given the rising treasury bond yields, fluctuations in the U.S. dollar’s exchange rate, and a decline in consumer and business confidence. These factors are influential, as they can impact spending habits among consumers and businesses alike, raising risks to the growth trajectory of the economy.

A pause in the implementation of reciprocal tariffs provides some relief by reducing short-term risks to the economy. Despite this, uncertainty lingers, bringing into question the consensus expectations for economic performance and corporate earnings.

Demonstrating resilience, the U.S. economy has shown solid foundations that have allowed it to absorb the Federal Reserve’s aggressive tightening over the past two years. This resilience has positioned the U.S. economy in a strong light against global markets, reinforcing confidence in its durability during ongoing uncertainty.

Despite economic apprehensions, there have been fewer calls for recession in light of the strength observed. Recent announcements from major Wall Street firms indicate reduced risks of recession, aligning with anticipated strength and stability.

The Q1 financial results from JPMorgan and Wells Fargo reflect consistent consumer spending patterns from previous quarters. Although heightened uncertainty and market fluctuations pose challenges for investment banking, increased volatility has benefitted trading operations, as evidenced by robust trading figures from JPMorgan and Morgan Stanley. This trend is expected to continue throughout this earnings season.

The Importance of Guidance in This Earnings Season

Guidance is always a pivotal aspect of earnings releases, although only a minority actually provide it. Given the current backdrop of uncertainty, the value of guidance is escalated this time. However, it is likely we will see limited guidance from companies, as they are also navigating the complexities introduced by tariff issues.

This limited guidance complicates current consensus earnings expectations for upcoming quarters, and expectations will likely be downgraded as the Q1 reporting season unfolds. Unlike previous cycles, the focus this time will lean more towards how Q2 and beyond will evolve rather than solely on Q1 results.

We are beginning to observe these shifts in estimates for Q2 2025, as depicted in the chart below.

Image Source: Zacks Investment Research

The trend of negative revisions is more pronounced for full-year 2025 earnings estimates, as shown in the chart below.

Image Source: Zacks Investment Research

Initially, expectations for this year were buoyed by the positive impacts of the Trump administration’s market-friendly policies, including tax cuts and deregulation. However, as indicated in the data above, aggregate estimates for 2025 peaked in July 2024 and have since been on a downward trend.

The earnings outlook for the Energy sector has also been under pressure due to persistently weak oil prices. Thus, examining the overall earnings picture while excluding the Energy sector offers a clearer view, as illustrated below.

Image Source: Zacks Investment Research

This analysis shows earnings estimates for 2025 peaked in January and have trended downward since then. Our data reflects an acceleration in negative revisions during February and March, further compounded by recent tariff developments that have limited macroeconomic visibility.

Anticipated Earnings Reports This Week

This week, over 80 companies are scheduled to report earnings, including 29 members of the S&P 500. Notably, the Finance sector leads this week’s reports, with major banks, insurance firms, and regional operators disclosing their Q1 results.

Other prominent companies reporting results this week include Netflix (NFLX), UnitedHealthcare (UNH), Johnson & Johnson (JNJ), CSX Corporation (CSX), United Airlines, among others.

The following chart illustrates the year-to-date performance of Netflix, UnitedHealthcare, JNJ, and CSX Corp. compared to the S&P 500 index.

Image Source: Zacks Investment Research

The outperformance of UnitedHealthcare can be attributed to recent favorable changes in Medicare payment policies, granting the company a ‘tariff immunity.’ Both Netflix and JNJ are similarly benefiting from this context, while CSX Corporation’s exposure to trade dynamics is particularly evident.

This trend is also apparent in the revisions for these companies, especially for Netflix and UnitedHealthcare.

Q1 Earnings Scorecard So Far

With reports from JPMorgan, Wells Fargo, and Morgan Stanley, we now have Q1 results from 29 S&P 500 members. Most of these companies reported for fiscal quarters ending in February, contributing to the March-quarter figures.

Total earnings for these 29 members increased by +6.5% compared to the same period last year, bolstered by +5.7% revenue growth. About 65.5% of these companies exceeded EPS estimates, while 72.4% surpassed revenue expectations.

The comparison charts below contextualize the Q1 earnings and revenue growth rates against historical data.

Image Source: Zacks Investment Research

The following charts provide a historical perspective on the Q1 EPS and revenue beats percentages.

Image Source: Zacks Investment Research

As illustrated, early Q1 results suggest that companies are struggling to meet consensus estimates, with the EPS beats percentage in this group being the lowest in recent memory.