What to Expect From the Q2 Earnings Reporting Cycle

Key Points

• Earnings growth is expected to continue in 2025, but diminishing expectations are a headwind for equities.
• Technology will be the leading growth sector in Q2 and for the year, led by NVIDIA and other AI winners.
• A consensus of analysts predict the S&P 500 will hit a new all-time within the next twelve months.

The Q2 earnings reporting cycle is underway with the peak of the season still to come. It will begin mid-July with the report from JPMorgan Chase & Company NYSE: JPM, making now a good time to take a look at what to expect.

The primary takeaway from the Q2 cycle will be the tangible effect of trade relations and tariffs. The bulk of tariffs went into effect in April and June, so the impact will be substantial; the question is whether the market is pricing it in or expecting a worst-case scenario that won’t be realized. 

S&P 500 Q2 Earnings Forecasts: A Low Bar to Beat

The analysts have been reducing their estimates, along with company guidance, which has introduced significant uncertainty into the equation. The consensus estimate for Q2 S&P 500 NYSEARCA: SPY earnings growth has shifted into the mid-single-digit range from its previous mid-teens position, with most forecasts pointing to the lower end of the range. However, investors should expect the index to outperform the mid-June consensus by at least a few hundred basis points, aligning with the long-term trend, and produce growth from 8% to 10%.

The most significant impact on the outlook is the energy sector, which is expected to contract by more than 25%. The energy sector may underperform due to the oil price trend and consumer outlook; the driving force for energy stocks will be the impact on the capital return outlook, which could be negative.

The driving force for Q2 growth will be the Communications and Information Technologies sectors, forecasted to grow by 30% and 16% respectively. The growth will be underpinned by Communication Services, and specifically, Warner Bros. Discovery, but take this with a grain of salt. The company will still report a loss, but a significantly smaller one, due to an easier comparison to last year. 

The real growth will be seen in the information technology sector, which is underpinned by artificial intelligence (AI). The ten most prominent positions in the S&P 500 Technology sector, including Microsoft NASDAQ: MSFT, NVIDIA NASDAQ: NVDA, Apple NASDAQ: AAPL, Broadcom NASDAQ: AVGO, and Oracle NYSE: ORCL, are all forecasted to produce robust growth. NVIDIA is alone predicted to grow its revenue by more than 50% and may easily surpass the estimate. Deals with HUMAIN, the EU, and the UK will likely be revealed in the numbers. 

The Biggest Risk in the Q2 Earnings Cycle Is the Guidance

As always, the most significant risk for the index is the guidance. The likelihood of negative guidance is high with tariffs in full figures, and their impacts are evident in data such as retail sales figures. In this scenario, the outlook for Q3 and Q4, and by extension, for the year’s earnings, will continue to deteriorate, and the weakness may persist into next year. 

The outlook for 2026 remains strong, forecasting an acceleration from high-single-digit growth in 2025 to mid-teens growth in 2026; however, this may fall dramatically as the year progresses. 

The risk of not being invested is also tied to tariffs and trade relations. Trade relations are improving and on track for stabilization, a bullish catalyst for the economy, earnings growth, and stocks. The takeaway for investors is that the fundamental outlook remains bullish, with earnings growth expected in Q2, Q3, Q4, and next year; however, there are risks.

Volatility is likely to remain high, and the S&P 500 will continue to move choppily, regardless of its ultimate direction. Based on the trends and analysts' consensus reported by MarketBeat, the direction is up, with a high likelihood that the index will set a new high within the next twelve months.