Earnings are Adding Life to the Market

1. Q1 Earnings are Beating Estimates. As of Friday, 36% of the S&P 500 have reported Q1 results. 73% of companies have reported a positive earnings per share (EPS) surprise, and 64% have reported a positive revenue surprise. Thus far, the blended growth rate is 10.1% y/y – beating the 7.2% y/y estimate from the start of the quarter. Earnings have been good in what is a mostly negative economic backdrop.

Our learnings regarding earnings so far have been positive, with good results from both the banking and industrial sectors, although less so for consumer staples. Interestingly, consumer staples have outperformed both financials and industrials year-to-date as they are deemed “defensive”, yet the earnings say otherwise. The banks reported better-than-expected earnings, with solid trading revenues, better deposits, and strong capital levels. Net interest income (NII) was a little soft, but companies expect it to improve in the back half of the year. The most important item was that loan loss provisions were less than expected, which suggests consumer and corporate/industrial loans are in good shape. Loan loss provisions rise when banks fear that loans will or are defaulting at a higher rate, so lower loan loss provisions indicate that credit conditions are calm. Industrial companies have been able to carve out tariff-related impacts through a weaker dollar. A weaker dollar means that goods from foreign countries into the U.S. are cheaper, thus improving earnings. From the power generation companies (GEV, VRT), we have learned that data center demand and power themes remain a strong trend, with NVDA, AMZN, and GOOGL all reiterating capital expenditure plans and investments into data centers.

Investors believed that preliminary tariffs would play a role in Q1 numbers, but that does not entirely seem to be the case. The blended net profit margin for the S&P 500 thus far in Q1 is 12.4%, above the five-year average of 11.7%. Six sectors are reporting a y/y increase in net profit margins, led by communication services at 15.6%, and four sectors are reporting a q/q increase in net profit margins, led by utilities at 15%. Additionally, analysts believe net profit margins will continue to expand into 2025 – a belief that tariff-related price increases will not impact margins across the index.

Chart 1: Consensus Says S&P 500 Net Profit Margins Will Expand Further in 2025^[1]

2. Our Favorite Earnings Reports Thus Far. GE Aerospace (GE) and Boeing (BA) were two of our favorite Q1 earnings reports from the companies we follow. Starting with the former, EPS was up 60% y/y, operating profit 38% y/y, and operating profit margin up 460 basis points (bps) y/y. The commercial aerospace story is still in the middle innings and shows no signs of slowing with orders up 15% y/y, services up 31% y/y, and store visits up 11% y/y. GE boasts a $170 billion backlog, with 82% of that owing to commercial engines and services. GE reiterated guidance across the board.

Regarding BA, operating margins expanded 290 bps y/y – a sign that the company is improving its supply chains and controlling costs. BA delivered 130 planes in the quarter, which was up 57% y/y. Production is increasing every month, and 737 production is nearing the mid-30’s per month. The company should be able to get to 38 a month in no time. Their backlog expanded to $545 billion, including 5,600 commercial planes. Cash burn has been a concern for investors, and BA used much less than expected in Q1, $1.62 billion versus $2.8 billion estimated. Management stated they believe cash usage should be similar in Q2.

3. Fixed Income. U.S. Treasury yields fell across the curve last week as the 2-, 10-, & 30-year yields were lower by 5, 9, & 10 bps, respectively. This week’s packed macro calendar will likely heighten market volatility, with Consumer Confidence and JOLTS on Tuesday, PCE and the Treasury’s Quarterly Refunding Announcement on Wednesday, and ISM Manufacturing on Thursday, as strong or weak data could trigger rate repricing in either direction.

The last two weeks have signaled normalcy in investment-grade issuance, as a total of $53 billion in new bonds were brought to market, up from $15 billion issued in the first two weeks of April. Dealers are projecting around $35 billion of new bonds being brought to the market this upcoming week as metrics, including yields and spreads, move back towards levels seen before President Donald Trump’s April 2nd tariff announcement. Credit spreads improved across both investment-grade and high-yield segments last week. Investment grade tightened 12 bps to +146 bps, while high yield spreads tightened 38 bps to +415 bps. In terms of credit quality, the main rating agencies issued 21 downgrades and 16 upgrades. Materials had the most downgrades, while Industrials had the most upgrades.

Tax-exempt yields were lower by 1-4 bps across the curve last week. Municipal investors will be receiving $68 billion of principal and interest over the next 35 days, more than they received in March and April combined. This offers an excellent time to reinvest in a market that has seen Muni-to-Treasury ratios reach their highest levels since 2022.

4. The Week Ahead.

Economics – Tuesday: Wholesale Inventories, FHFA Home Price Index, Consumer Confidence, JOLTS Job Openings; Wednesday: ADP Employment Survey, GDP Q1, Personal Consumption Expenditure, Pending Home Sales; Thursday: Continuing Jobless Claims, Initial Claims, Construction Spending, PMI Manufacturing, ISM Manufacturing; Friday: Hourly Earnings, Nonfarm Payrolls, Unemployment Rate.

Earnings – Monday: CDNS, DPZ, FFIV, ROP, RVTY, SBAC; Tuesday: AMT, AOS, ARE, BKNG, BRO, CINF, CSGP, CZR, ECL, EIX, ETR, FICO, FSLR, GLW, GM, HLT, HON, INCY, KHC, KO, LH, MDLZ, MO, NUE, NXPI, PCAR, PFE, PYPL, RCL, REGN, SBUX, SHW, SPGI, STX, SYY, TER, UHS, UPS, V, WELL, WM, XYL, ZBRA; Wednesday: ACGL, ADP, ALGN, BXP, CAT, CCI, CHRW, CTSH, EBAY, EQIX, EQR, ESS, EXE, EXR, GEHC, GNRC, GRMN, HUM, IP, ITW, KLAC, META, MGM, MLM, MSFT, NCLH, OKE, PEG, PPG, PPL, PTC, QCOM, REG, SWK, TT, VLTO, VMC, WDC, YUM; Thursday: AAPL, ABNB, AFL, AJG, ALB, ALL, AME, AMGN, AMZN, APD, APTV, AVB, AWK, BAX, BDX, BIIB, BLDR, BR, CAH, CARR, CHD, CVS, D, DTE, DXCM, EG, EL, EXC, FTV, GDDY, GL, GWW, HII, HOLX, HST, HSY, HUBB, HWM, ICE, IDXX, IEX, INVH, IRM, KIM, KKR, LIN, LLY, LYV, MA, MAA, MCD, MET, MPWR, MSI, MRNA, PH, PNW, PRU, PSA, PWR, SO, SW, SYKM, TRPG, UDR, VICI, VTR; Friday: AEE, AES, AIG, APO, BEN, CBOE, CI, CPT, CVX, DD, EOG, ES, ETN, IR, MHK, MTD, TROW, XOM.

Stephanie Link’s TV Schedule:

Return for Selected Indices^[2]

Sources:

^[1] Source: FactSet. As of April 25, 2025.

^[2] Source: Bloomberg. As of April 28, 2025.

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