For Q1 Earnings Season, It’s the Uncertain Outlook That Matters

Key Takeaways

• Rapidly fluctuating US trade policy is clouding the outlook for company earnings in 2025.
• Strategists say US firms may offer weaker earnings guidance for the rest of the year, or they may withdraw their guidance altogether.
• If tariffs are implemented as announced, they could weigh on companies’ bottom lines and drive up costs for consumers.

As the first-quarter earnings season gets underway, expect even more focus than usual on what companies have to say about their outlooks, even as the extreme uncertainty around tariffs means they deliver weaker, less-confident, or even no guidance.

Widespread tariffs could weigh on corporate bottom lines in a slew of ways, both directly and indirectly. Higher import costs mean more pressure on margins. Some firms could choose to alleviate that pressure by raising prices for their customers, while others could choose to absorb them. A broad slowdown in consumer spending could be especially painful for some sectors like retail, while a weaker environment for business could prompt some firms to pull back on capital investments.

Last week’s announcement of new levies on dozens of US trading partners took investors by surprise, triggering a rapid recalibration of expectations for economic growth. On Wednesday, President Donald Trump paused some of those tariffs for 90 days, sending financial markets soaring. Against this backdrop, in which Trump’s trade policy has been changing virtually by the day, the outlook remains highly uncertain.

Jeff Buchbinder, chief equity strategist at LPL Financial, says his firm is suspending its forecast for earnings this year while it awaits “a little bit more clarity on where these tariffs might land.”

Tariffs of the magnitude proposed by the Trump administration could have ripple effects across multiple aspects of American companies’ business models, from their supply chains to their labor costs to their price structures to customer behavior. Many firms have already warned investors that new tariffs could eat into their profits and prompt them to pass higher costs on to consumers.

As of Monday, David Lefkowitz, head of US equities at UBS Global Wealth Management, was forecasting relatively flat earnings growth for companies across the S&P 500 in 2025. Baked into that forecast are assumptions for GDP growth of less than 1%. Lefkowitz noted that earnings can fall much further (close to 20%) in the case of a recession, but he said he expects growth to resume in 2026 as tariff policy becomes clearer.

Buchbinder says that if tariffs are scaled back and companies adjust, earnings growth may take a much smaller hit. He’s still expecting some growth here for the year.

First-Quarter Earnings Likely Held Up

Corporate earnings reports typically consist of two components: results from the previous quarter and guidance about how executives expect the company to perform in the future. The most recent round of tariffs was announced on April 2, after the books were closed on the first quarter of 2025.

Analysts are currently projecting 6.8% first-quarter earnings growth for companies in the S&P 500 benchmark index, according to FactSet’s consensus estimates. That’s a significant markdown from the start of the year, when analysts forecast growth of 11.5.%. For the full year, analysts expect 11.2% growth, down from estimates of 14.2% growth at the start of January. In the fourth quarter of 2024, earnings across the S&P 500 grew 18.2%.

This close to earnings season, Lefkowitz says that analysts don’t tend to change their estimates for the most recent quarter’s results unless there’s a new piece of information related to a specific company or unusually weak economic data. He says he’s not surprised that estimates haven’t fallen further since the selloff began last week.

But Morningstar chief research and investment officer Dan Kemp says that since the start of 2025, estimates have fallen in a way that bucks the typical trend. “Expectations have fallen further than normal this quarter, indicating that business conditions have worsened since the start of the year,” he pointed out last week.

Next Quarter’s Guidance Is Anybody’s Guess

The bigger news coming out of the first quarter’s earning season will more likely be related to the outlook for the future.

“Q1 earnings were probably fine, for the most part,” Todd Ahlsten, chief investment officer at Parnassus Investments, said last week. “But that doesn’t really matter anymore.”

If the tariffs announced on April 2 are ultimately implemented, the world will look very different than it did at the start of the year. Most market watchers expect at least some of the details of the levies to change in the weeks ahead, as US trading partners try to strike deals. That makes forecasting future performance almost impossible.

“There’s going to be a massive amount of uncertainty,” Ahlsten says. “My sense is that companies are probably going to be pretty conservative to guide. They’re not going to know.”

Lefkowitz suspects some companies may even forego guidance altogether: “Some percentage of companies—more than normal—will just be saying [they] don’t have the visibility to provide discrete guidance for the quarter," or maybe even for the entire year. “There are too many variables, I think, to really game it out.”

He expects to see executives field questions around how they’re planning for different scenarios. What happens if tariffs remain in place? What if they’re smaller, or larger? He’ll also be watching for mentions of consumer spending, which will give a window into how companies’ results could be impacted by tariffs. Meanwhile, firms’ discussions of their capital spending could provide perspective into how they plan to respond to tariffs and how they’re preparing their businesses for the disruption.

Stocks Could Sink Further, but Opportunities Could Emerge

Forward guidance is what typically moves financial markets. When a company warns that it could see smaller profits down the line, its stock often falls. That could happen across the market, but there’s a silver lining for investors if it does.

“Weaker results and less sanguine outlooks by company managements could ignite further falls in stock prices,” says Kemp. “It is important to remember that most of the value of a company lies in the future and so the impact on a company’s real value is likely to be muted.” He thinks a widening gap between stock prices and future real values could be “very fertile soil” for investors.