Second quarter corporate earnings reflect a healthy economy.
U.S. companies enjoyed solid year-over year growth.
The key question going forward is whether consumer spending and fiscal stimulus can continue offsetting potential drags from tariff uncertainty.
With second quarter 2025 earnings season nearly complete, S&P 500 companies continue to generate solid earnings growth that outpaces lowered analyst expectations. Healthy consumer spending, significant corporate technology spending, and lower corporate taxes bolstered strong results. Quarterly earnings increased 119% from 2024’s second quarter, with over 90% of companies reporting. 1
Sources: U.S. Bank Asset Management Group Research, FactSet, “Earnings Insight,” August 8, 2025.
Investors wonder if the economy can sustain sufficient momentum fueling company profits and how firms must adjust to new Trump administration tariff and tax policies.
“You look at ongoing tariff talk and geopolitical challenges, and the equity market is still trending higher. That goes back to strong fundamentals, most importantly that inflation remains under control,” says Terry Sandven, chief equity strategist for U.S. Bank Asset Management Group.
Sources: U.S. Bank Asset Management Group Research, U.S. Bureau of Labor Statistics, August 12, 2025.
Elevated valuation concerns persist following two strong market performance years (+26% total return in 2023, +25% in 2024). An early 2025 negative investor sentiment shift led to a nearly 20% decline in the S&P 500. Since hitting its 2025 low point on April 8, the S&P 500 is up nearly 28%. The S&P 500 remains near all-time highs, delivering a 9.2% year-to-date total return. 2
“You look at ongoing tariff talk and geopolitical challenges, and the equity market is still trending higher. That goes back to strong fundamentals, most importantly that inflation remains under control.”
Terry Sandven, chief equity strategist for U.S. Bank Asset Management Group.
The S&P 500’s projected price-to-earnings (P/E) ratio, an important valuation measure, remains slightly above its five-year and ten-year average. 2 “It will be important that earnings growth stays on track this year,” says Rob Haworth, senior investment strategy director with U.S. Bank Asset Management Group. “With today’s relatively rich valuations by historical measures, companies can’t afford earnings stumbles.”
In 2023 and 2024, consistent economic growth benefited equities, with technology stocks driving the market’s rally. Significant artificial intelligence (AI)-related investment spending continues driving technology company revenues. After a sluggish start to the year, communications services and information technology stocks are again atop the S&P 500, generating year-to-date total returns exceeding 15%. Utilities and industrials stocks have delivered comparable returns. Currently, all other sectors are underperforming the broader S&P 500 index. 2
Sources: U.S. Bank Asset Management Group Research, S&P Dow Jones Indices, August 11, 2025.
Analysts currently forecast roughly 8.5% S&P 500 earnings growth in 2025 compared to the previous year. 1 Analyst forecasts are subject to change as new information emerges. So far in 2025, analysts’ earnings growth expectations ranged from 10% earlier in the year, to -6% after President Donald Trump’s initial tariff announcement. Even in the new tariff environment, the economy and corporate profits remain solid. Importantly, newly enacted tax legislation (the so-called One Big Beautiful Bill Act) allows companies to fully expense or depreciate certain costs, thereby lowering taxes and stimulating investment activity.
Like previous years’ trends, companies are revising forward earnings guidance higher. “Earnings guidance followed normal seasonal patterns, with early-year lofty expectations, followed by companies lowering guidance in the year’s first half,” says Bill Merz, head of capital market research for U.S. Bank’s Asset Management Group. “Now we’re seeing more companies revise earnings higher versus lower, signaling rising economic confidence.”
Sources: U.S. Bank Asset Management Group Research, FactSet, “Earnings Insight,” August 8, 2025.
“We anticipate mixed tariff effects on company profits,” says Haworth. “Companies most dependent on importing goods manufactured overseas will likely face more challenges.” Haworth also expects challenges arising for multinational companies that export products abroad, assuming other countries impose retaliatory tariffs.
By contrast, smaller companies less reliant on foreign trade may be better positioned to navigate the trade landscape. “Since they aren’t selling into foreign markets and aren’t dependent on foreign goods, smaller companies may have more pricing power,” says Haworth. Healthier earnings may result. However, Haworth notes, “Smaller companies face higher financing costs in today’s interest rate environment, which can hurt their bottom lines.”
The price to earnings or P/E ratio measures broad market valuation and is also applied to individual stocks. It is the ratio of a stock’s current price compared to the company’s historical or anticipated earnings. For example, a stock trading at $30 per share with annual earnings of $2 per share has a P/E ratio of 15.
Assessing which of two stocks offers the best investment opportunity based on their P/E ratios, is not always an “apples-to-apples” comparison. “Determining fair value has a lot to do with the underlying industry’s growth rate in which the company competes,” says Haworth. In some cases, investors may be willing to bid up prices based not on current earnings, but on expected future profitability. “This tends to be the case, for example, with stocks that invest in new technology that may not have an immediate payoff but offer the potential of future strong earnings if they succeed,” says Haworth. “Other stocks may have lower P/E multiples, but those companies generate steadier earnings, so the payoff on the investment needs to happen in a more compressed timeframe.”
Corporate earnings ultimately drive long-term equity market performance. At times, other factors can influence short-term market swings. Federal Reserve interest rate policy often has an immediate market impact. Recent market volatility is attributed to President Trump’s tariff proposals, and frequent tariff plan changes.
Despite 2025 market fluctuations, most underlying economic data supports the market’s upward trend. “Consumer spending remains robust overall, growing about 5% year-over-year,” says Merz. “Although lower income groups face more challenges, overall consumer spending continues to support corporate earnings growth.”
Year-to-date, global stock markets are outpacing U.S. stocks. 3 “In the current environment, a globally diversified portfolio allows investors to capitalize on a broad array of opportunities,” says Haworth.
As you assess your investment options and how to best position your portfolio, it can be helpful to do so in the context of a financial plan. Talk with your wealth professional to review whether changes to your investment strategy may be warranted to better reflect your goals, risk appetite and time horizon.
Company earnings show a firm’s net income, or the money it earns after deducting costs. The calculation starts with revenue generated over a specific period, usually one quarter (13 weeks). Then the cost of sales, operating expenses, interest costs and taxes incurred over that same time are deducted from revenue to determine earnings.
Basically, yes. Other terms like “earnings,” include “net income” and “the bottom line.” Investors sometimes consider other variations on “profits.” For example, gross profits show the direct costs of sales incurred to generate revenue. A higher gross profit reflects efficient goods and services production. Operating profit accounts for indirect costs, such as marketing and administrative expenses. Net profit is calculated by subtracting interest and taxes from operating profit. Operating profit is the equivalent of corporate earnings.
Both are important. When evaluating a publicly traded company’s financial health, earnings, which reflect the “bottom line” for a company, measure its profitability. Revenue reflects sales of a company’s products and services. When calculating earnings, various expenses are subtracted from revenue to determine profitability. A firm may generate significant revenue, but if expenses are too high, its bottom line won’t look as impressive. Investors often emphasize a company’s earnings, and earnings growth prospects when valuing a stock.
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