Behind the repeated record highs in US stocks: profit expectations are being revised at the fastest rate in four years

The Zhitong Finance App learned that no wonder the S&P 500 index has repeatedly reached new highs: analysts are raising profit expectations for this quarter at the fastest rate in the past four years. A Citigroup index that tracks the relative amount of increases and decreases in earnings expectations for US stocks has risen to the highest level since December 2021. And companies that have recently released their own guidelines have shown the same strong trend. According to data from Bloomberg Intelligence, a forward-looking guidance indicator that compares corporate guidance with Wall Street consensus expectations is hovering at its second-highest level in nearly four years.

This more optimistic outlook is in stark contrast to the beginning of the year, when concerns about US President Donald Trump's trade policy peaked, causing business guidance indicators to fall to their lowest point in a decade.

However, it may take a few months before US companies begin to feel the full impact of Trump's trade war on their supply chains and profit margins.

“A few months ago, analysts lowered profit expectations due to tariff issues,” said Yung-yu Ma, chief investment strategist at PNC Asset Management Group. People are now more convinced that tariffs will not have as devastating an impact on the economy as previously feared. But the problem is that everyone is waiting for the impact of the tariff policy in the next few months.”

The upward trend in US corporate profit expectations reached its peak since 2021

This may explain why expectations for the whole year have yet to fully return to previous levels. Analysts' profit forecasts indicate that the growth rate for the full year of 2025 will be 9.2%, down from nearly 13% at the beginning of the year. According to data compiled by Bloomberg Intelligence, Wall Street expects the earnings per share of S&P 500 companies in 2025 to be about $269, lower than the $273 forecast at the beginning of the year, and lower than the $279 forecast a year ago.

Moreover, there is no guarantee that the trend of raising profit forecasts will continue. Nick Giacoumakis, president of NeirG Wealth Management, said sell-side analysts and companies may lower their forecasts in the next few months.

This also happened during Trump's first term: although trade disputes heated up in early 2018, the impact on corporate profits won't be felt until about a year later. Giacoumakis said the US economy benefited from large-scale corporate tax cuts during this period.

This time around, the latest large-scale tax cuts proposed by Trump have also allayed economic concerns about his trade policies. However, Bloomberg Intelligence believes that the bill's tax cuts for S&P 500 constituent companies may only be about half of the 2017 bill.

Goldman Sachs Group's David Kostin said on Friday that he expects the recent strong trend of analysts' earnings revisions “to weaken in the future,” adding that “the widely anticipated margin expansion seems unrealistic.”

Bloomberg Intelligence senior analyst Wendy Soong said analysts will not rashly adjust their forecasts for the second half of the year until more companies release profit forecasts for the next few quarters.

Nonetheless, the current earnings season's trends are unquestionably strong. Only 25% of the S&P 500 constituents have issued quarterly results guidance, and such companies usually focus on technology and non-essential consumer goods companies. Up to now, about 90 companies have announced earnings per share expectations for the third quarter, and Bloomberg Intelligence believes that the momentum shown by these guidelines is the strongest since the last three months of 2024. Among the 64 companies that have published third-quarter revenue guidance, the growth momentum is the strongest since the second quarter of 2021.

This week, major US retailers such as Walmart (WMT.US) and Target (TGT.US) will release financial reports, and traders will pay close attention to the performance of American consumers in the early stages of implementation of Trump's tariff policy.

In recent years, the company's performance has shown strong resilience, even in the face of various challenges, from soaring inflation to the highest interest rates in decades. Today, many investors want Trump to reduce or eliminate tariffs before the tariff policy puts a strain on profits.

However, while US companies are confident in their ability to withstand the trade turmoil, Goldman Sachs strategists led by Guillaume Jaisson said “cost pressure may increase in the second half of 2025, thereby posing a downside risk to actual revenue growth.”

Neirg's Giacoumakis said, “Most companies are still consuming the inventory they had hoarded before the tariffs came into effect, and executives didn't know at the time how global trade would change. So it will be a few more quarters before we can better understand the impact of all of this on the business.”