Analyzing the Current Earnings Outlook

S&P 500 June quarter earnings are projected to increase +5.5% year-over-year on +3.8% higher revenues, but estimates have broadly declined across most sectors since the quarter began, with Aerospace being the exception. Q1 earnings for the 477 S&P 500 members that have reported are up +11.4% on +4.4% higher revenues. Retail sector earnings growth is heavily skewed by Amazon's performance; excluding Amazon, the sector's earnings growth declines significantly, highlighting margin pressures from e-commerce logistics.

Analysis

The S&P 500 is projected for a +5.5% earnings growth in the June quarter on +3.8% higher revenues, following a stronger Q1 where earnings for 477 reported members rose +11.4% on +4.4% revenue growth, with 74.2% beating EPS estimates. However, Q2 estimates face broader and greater downward pressure relative to recent periods, with 15 of 16 Zacks sectors seeing estimate reductions since the quarter began; Aerospace is the sole sector with upward revisions. The Retail sector's Q1 earnings, up +11.2% on +5.0% revenue growth for 28 reported companies, are significantly distorted by Amazon's (AMZN) performance; excluding AMZN, Q1 retail earnings would decline by -5.0%. This disparity highlights ongoing margin pressures for traditional retailers due to e-commerce fulfillment and delivery costs, with non-AMZN retail margins trending down since 2021, though a bottoming is anticipated this year. Heightened tariff uncertainty, following April 2nd announcements, has weighed on Q2 estimates, particularly for Transportation, Autos, Energy, Construction, and Basic Materials. Notably, estimates for the Technology sector, which accounts for nearly a third of S&P 500 earnings and is expected to see +11.9% earnings growth in Q2, have stabilized in recent weeks after initial declines, a trend also visible in full-year 2025 expectations. While stocks have recovered from tariff-related losses, the deferred nature of these levies and persistent macro uncertainty suggest continued pressure on earnings estimates.

Key Decisions for Investors

• Exercise caution given the broad-based downward revisions in Q2 earnings estimates across most S&P 500 sectors and lingering tariff uncertainties which could further impact future profitability.
• Scrutinize retail investments by differentiating Amazon's strong contribution from other retailers facing significant margin compression due to e-commerce logistics, and monitor for the anticipated bottoming of non-Amazon retail margins.
• Monitor the Technology sector for continued stability in earnings revisions, as its significant weight in the S&P 500 makes its performance critical for overall market direction, and note the Aerospace sector as a potential outlier with positive estimate revisions.
• Investors should consider the significant impact of Amazon on headline Retail sector figures; when evaluating other retailers like Target (TGT) and Walmart (WMT), focus on individual company margin trends and strategies to mitigate e-commerce costs.