Earnings Season 2025: A Wake-Up Call for Investors

The upcoming earnings season is shaping up to be a challenging one for investors. With a slew of negative revisions to estimates and growing uncertainty due to tariffs and policy changes, the market is bracing for a potential downshift in earnings growth. The recent guidance downgrades from several retailers, citing tariffs and other sources of uncertainty, are early signs of a tough road ahead. This season, investors will need to be more vigilant than ever, as the usual patterns of earnings growth may not hold up.

The data is clear: there has been a relatively elevated magnitude of negative revisions to estimates for the current period (2025 Q1) even before the more recent signs of weakness in data. This trend is more pronounced and widespread, affecting 14 of the 16 Zacks sectors, with significant declines in sectors such as Conglomerates, Autos, Basic Materials, Aerospace, Consumer Discretionary, and others. This widespread negative revision is a concerning sign compared to previous quarters, where such revisions were less frequent and less severe.



The guidance downgrades from several retailers, citing tariffs and other sources of uncertainty, are early signs of a potential downshift in the earnings picture. For instance, the guidance downgrades from several retailers in recent days, where they cited tariffs and other sources of uncertainty, could very well be an early sign of a downshift in the earnings picture. This uncertainty is reflected in the market sentiment, which has been affected by the psychological blow following China’s DeepSeek announcement, leading to underperformance in AI-focused stocks.

The performance of key stocks like Oracle and Adobe, which are reporting this week, shows a decline in market sentiment. Oracle is expected to report earnings of $1.48 per share on $14.36 billion in revenues, representing year-over-year changes of +5% and +8.1%, respectively. However, estimates have been stable over the past month, but have declined relative to where they were two- and three-months back. This decline in estimates, coupled with the underperformance of Oracle shares, which are down -18.9% over the past year, indicates a challenging environment for investors.



In comparison to previous earnings seasons, the current season shows a higher magnitude of negative revisions and more widespread declines in estimates. For example, the magnitude of negative revisions to Q1 estimates is more pronounced relative to the last few quarters. This suggests that investors may face more challenges in the upcoming earnings season compared to previous periods.

The current economic and political climate, including factors such as tariffs and policy uncertainty, is expected to have a significant impact on the earnings reports of major companies and sectors. The economic growth forecasts for 2025 are modest, with U.S. growth forecast at 2.0%, the Eurozone at 0.9%, and Chinese growth at 4.2%. This suggests that the overall economic environment may not be conducive to strong earnings growth.

The focus of policy is already moving from monetary to fiscal, as economies seek to find and drive new forms of development and growth. This shift could add to the uncertainty and impact the earnings of companies that are sensitive to policy changes. For example, on politics & policy, we think that the future is fiscal. Even though inflation is not fully tamed, the focus of policy is already moving from monetary to fiscal, as economies seek to find and drive new forms of development and growth.

In summary, the upcoming earnings season is likely to be problematic for investors. The elevated magnitude of negative revisions to estimates, guidance downgrades from retailers, and the challenging economic and political climate all point to a tough road ahead. Investors will need to be more vigilant than ever, as the usual patterns of earnings growth may not hold up. The market is bracing for a potential downshift in earnings growth, and it will be a massive wake-up call for investors who are not prepared for the challenges ahead.