The negative earnings-growth momentum that has plagued U.S. equities for months is finally taking a turn for the better.
A Citigroup Inc. gauge of earnings revisions, based on the number of upgrades and downgrades, has turned positive for the first time in six months, implying analysts’ estimates could soon be heading higher.
“Earnings-per-share expectations of U.S. cyclicals seem to have bottomed out,” wrote HSBC Holdings Plc strategists led by Max Kettner. “Broader U.S. earnings revisions have also rebounded strongly in the last two weeks. The weaker greenback may even support further with earnings upgrades relative to other regions such as the eurozone in the coming weeks.”
The surprisingly positive earnings season, as well as some easing of trade tensions globally, have spurred optimism after a period of doubt about the ability of U.S. equities to meet elevated expectations for profit growth. The fading artificial-intelligence frenzy since the DeepSeek announcement earlier this year, as well as rising risks of a U.S. recession, had weighed on estimates.
But analysts may have been too pessimistic, and are now forced to catch up. According to a Bloomberg Intelligence earnings tracker, 77% of S&P 500 members that reported surprised positively in the first quarter, the highest since the second quarter of last year. Meanwhile, earnings growth in the quarter is running at 13.1%, compared with just 6.6% expected before the start of the season.
Goldman Sachs Group Inc. strategists led by David Kostin raised their 2025 and 2026 EPS growth estimates to 7% for both years, from 3% and 6% previously.
“These estimates reflect an improved U.S. economic outlook, lower tariff rates than we previously assumed, and a better-than-expected first-quarter earnings season,” they wrote in a note. “Our 2025 EPS growth estimate is now above the top-down consensus estimate of 4% and in line with the bottom-up consensus estimate of 7%.”
Tariffs have been at the forefront of company concerns during reporting season, with mentions spiking to a record in earnings calls, according to an analysis by Morgan Stanley. About 30 firms pulled or paused guidance amid tariff uncertainty, especially within sectors including autos, durables and industrials.
The announcement of a trade deal with the U.K. and the temporary easing of tariffs between the U.S. and China have boosted expectations that duties will end up much lower than initially expected. That has alleviated recession fears.
Investors have become less pessimistic about global growth generally in the past month. According to the Bank of America Corp. fund manager survey published Tuesday, a net 59% of respondents now expect a weaker economy this year, a sharp improvement form the record 82% taking that stance last month. “Improvement in global growth sentiment is supportive for stocks,” wrote the team led by Michael Hartnett.
Michael Msika, Bloomberg News
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