
“This earnings season is critical”. We’ve heard that line before, but this time we believe it really is. The timing, context, and uncertainty, even intraday, couldn’t be more pivotal. Corporations are now navigating a perfect storm of uncertain demand, rising cost pressures, and shifting trade policy. And now they have to go before a fearful market that is hanging on to every word.
The issue dominating corporate boardrooms? You guessed it. Tariffs. Not just as an economic cost and demand curveball, but as a strategic distraction.
Jamie Dimon, CEO, JPMorgan Chase:
“And then you’re going to hear 1,000 companies report, and they’re going to tell you what their guidance is. My guess is a lot will remove it. They’re going to tell you what they think it might do to their customers, their base, their earnings, their cost, their tariffs. It’s different for every company. But I assume you’ll see that. And anecdotally, a lot of people are not doing things because of this. They’re going to wait and see.”
Scott Strazik, CEO, GE Vernova
“While our end markets remain strong, we are not immune to the complexity at play given the current outline of tariffs and resulting inflation. We do expect our costs to go up $300 million to $400 million in 2025. We are moving at pace to mitigate these pressures with pricing actions.”
Andre Schulten, CFO, Procter & Gamble
“Volatility in terms of mortgage rates expectations, all the divisiveness and nationalistic rhetoric that we saw around the world uncertainty on tariffs and the impact on prices and availability of goods. So, I mean, the consumer has been hit with a lot, and that’s lot of process. So what we’re seeing, I think, is a logical response from the consumer to pause. And that pause reflected in retail traffic being down.”
Well, you get the picture. Companies are assessing and reassessing their supply chains and the potential demand impact of an ever-evolving picture regarding global trade policies. Across industries, executives are flagging rising input costs, weakening visibility, and a macro backdrop that’s becoming more difficult to forecast.
Earnings expectations are starting to show cracks. Coming into the first quarter of this year, the market expected 12% earnings growth in the first quarter of 2025. Today, that expectation has declined to 7%. On an even broader scale, earnings growth for the full year of 2025 has declined from 15% to 10% over the same time period.
It all comes down to the forward-looking mechanism of the markets. Equities trade at a discounted present value of future cash flows according to classical financial theory. The earnings multiple reflects the expected growth and viability of future cash flows. As you can see with the chart below, the S&P 500 Index price-to-earnings multiple started discounting a softer earnings environment in late February with its decline. However, earnings expectations didn’t start to decline until early April. A lag is logical as it takes some time for the change in expectations to filter through to the aggregate. However, earnings expectations still remain above where they were in mid-February as valuations began to discount less optimism. The two are out of sync.
Something has to give. Even though there is not very much clarity on the landscape for the rest of the year, executives are having to articulate the changes they see now and going forward, or awkwardly explain why they cannot. There is consistently pressure to underpromise and overdeliver any forward-looking guidance. Meanwhile, the forward multiple is sending a message: the market no longer fully believes in the $275.70 in S&P 500 earnings currently forecasted.
There are two potential outcomes coming into focus in our view. Looking again at the chart below, the two lines should start to close the gap this earnings season and it can happen in two ways. First, earnings guidance gets revised lower as executives confirm fears of a weaker economy. Alternatively, the earnings expectations can hold up better than expected, restoring confidence and allowing valuations to recover.

The stakes are high this earnings season. For the first time in several quarters, the market is not looking for results to reinforce an uptrend. This time, the market is looking for confirmation, or contradiction, or growing pessimism.
Sources: FactSet, GE Vernova, JP Morgan Chase, Proctor & Gamble
By J. Keith Buchanan, CFA, Senior Portfolio Manager
Originally Published at Globalt Investments
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