The second quarter earnings season for the S&P 500 is off to a strong start compared to expectations. Both the percentage of S&P 500 companies reporting positive earnings surprises and the magnitude of earnings surprises are above their 10-year averages. 12% of the companies in the S&P 500 have reported actual results for Q2 2025 to date. Of these companies, 83% have reported actual EPS above estimates, which is above the 5-year average of 78% and above the 10-year average of 75%. In aggregate, companies are reporting earnings that are 7.9% above estimates, which is below the 5-year average of 9.1% but above the 10-year average of 6.9%. In terms of revenues, 83% of S&P 500 companies have reported actual revenues above estimates, which is above the 5- year average of 70% and above the 10-year average of 64%. Of the 60 companies that have annoucned results till now for Q2CY25, 83% have reported actual EPS above the mean EPS estimate, 5% have reported actual EPS equal to the mean EPS estimate, and 12% have reported actual EPS below the mean EPS estimate. Companies are reporting earnings that are 7.9% above expectations. This surprise percentage is above the 1-year average (+6.3%), below the 5-year average (+9.1%), and above the 10-year average (+6.9%). What does not break finally gets stronger. Investors seem to be looking through tariff hikes and focusing on the outlook for healthy economic and earnings growth in 2026. Consensus earnings revision breadth has recently jumped to the highest level since 2022, and the outperformance of cyclical industries suggests the equity market is pricing an outlook for solid GDP growth despite consensus expectations for sluggish growth in coming quarters. Recent dollar weakness should provide a small tailwind to S&P 500 earnings. The trade-weighted US dollar has depreciated by 7% YTD and we expect a further 4% weakening through year-end. Company 10-K filings indicate that international sales account for 28% of S&P 500 revenues. A 10% decline in the dollar is associated with a boost of roughly 2-3% to S&P 500 EPS, all else equal. We now expect a range bound performance of S&P500 for H2CY25 between 5600-6500 with risks evenly balanced. We expect that bouts of policy, macro, monetary and economic uncertainty/volatility will persist. Still, fundamental trajectories remain our guiding force. Investors have already contended with the uncertainty posed by Deepseek concerns on AI, a Liberation Day wake up on tariff risks, the Middle East flare up, and the recent budget process. The implication now is for shock effects to be lesser and/or more localized. Generally, our expectation is for policy-related impacts to become more company/sector specific and less-broader index.
