Upcoming Analysis of Second Quarter Profit Reports
The upcoming second quarter of 2025 is set to see the Magnificent Seven - a group of tech giants and innovative companies - facing some pressure on their earnings growth, but overall, their performance is expected to remain strong.
According to financial analysts Janus Henderson and JP Morgan, the Magnificent Seven, which includes Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla, reported earnings growth of nearly 28% in the first quarter of 2025. While this was slightly below their average over the prior three quarters, it still significantly outperformed the rest of the S&P 500, which saw about 9% growth.
The near-term earnings growth for the Magnificent Seven may be pressured due to tariff anxieties and economic uncertainty. However, these companies are expected to recover later in the year as trade outlooks clarify and mitigation strategies are implemented. Their strong balance sheets, scale, pricing power, and supply chain flexibility position them well to handle volatility and bounce back.
The earnings growth rate for the group is expected to remain robust, likely in the mid-20% range for the quarter, supported by their dominant market positions and exposure to growth themes like artificial intelligence.
Meanwhile, the energy sector is predicted to show the most significant year-over-year decline in earnings due to lower oil prices. On the other hand, the communication services sector, led by Warner Bros. Discovery, is expected to see a flattering earnings growth rate of 29.4% year-over-year, but if WBD is excluded, the expected growth falls to 8.2%.
The second-quarter earnings season for S&P 500 companies begins this week, with 39 companies scheduled to report, including notable names like Blackrock, JPMorgan Chase, Wells Fargo, Citigroup, Bank of America, Johnson & Johnson, Goldman Sachs, PepsiCo, Netflix, 3M, and American Express.
The economic calendar heats up this week with consumer inflation (CPI) and retail sales reports. Tuesday's June CPI is expected to increase to 2.6% year-over-year from 2.4%, while the retail sales report on Thursday is expected to show a modest rebound for the US consumer.
The S&P 500's blended earnings growth rate for the second quarter is currently at 4.8% year-over-year, and sales growth is meeting expectations at 4.2%. If JPMorgan Chase is excluded from the financial sector, year-over-year earnings growth improves to 9.3%.
Significant new tariffs are currently scheduled to be implemented on August 1, barring an acceptable trade agreement. Newsflow about the administration's trade negotiations and new tariff announcements will remain a focus. Sales growth for the second quarter could see an upside if the estimates of 4.7% year-over-year nominal GDP growth are correct.
The US dollar weakened relative to the same quarter last year, which should benefit companies' international earnings, as 41% of S&P 500 sales are from international sources. The calendar year 2025 expected earnings growth rate is 9.0%, and 2026’s expectations are at 14.0%.
The first of the Magnificent Seven is scheduled to report results next week, marking the start of a busy earnings season for these tech titans.
Earnings growth for the Magnificent Seven, such as JPMorgan Chase, is anticipated to remain robust in the mid-20% range for the second quarter of 2025, despite pressures from tariffs and inflation. The upcoming earnings season presents a significant opportunity for investors in the finance sector to monitor the performance of these tech giants and innovative companies.
