Elevated expectations pose a tough earnings challenge for Wall Street

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A flood of earnings reports over the next two weeks, expected to top U.S. corporate profits, will play a particularly important role in setting the direction for Wall Street stocks, investors say, after a shaky start to 2025.

The S&P 500 had its best week since November’s US election last week, helped by strong numbers from the biggest banks, sending the index back into the black for January.

But investors said a strong showing from more household names – totaling $25tn – was to be reported before the end of January if the market was to surpass last month’s record high.

Analysts are forecasting their best quarterly results in three years, with net profit for S&P 500 companies expected to rise 11.4 percent year over year, according to FactSet.

The index It grew 23 percent last year. As interest in artificial intelligence-related stocks fueled gains for tech companies. That puts the S&P at a price/earnings ratio of 21 times, according to LSEG data.

“Revenue cannot rely on multiple expansions to increase returns,” said Jurien Timmer, global head of Fidelity Investments in 2024.

“This will increase the burden on earnings to be a major contributor to the market’s recovery,” he added, pointing to higher interest rates.

On average, a negative January for stocks leads to a median return of 2.5 percent for the rest of the year, according to Barclays strategists. An opening month with at least 1.5 percent profit, but an annual profit of more than 11 percent.

In the year After hitting consecutive record highs in 2024, stocks have stumbled in recent weeks, weighed down by fears that higher interest rates could hurt economic growth and uncertainty over early moves by the incoming Trump administration.

Among those set to report this week are companies including Netflix, GE and consumer products group Procter & Gamble. Tech giants Amazon, Microsoft, Facebook parent Meta and Tesla are a week away.

The highest growth is still expected to come from the technology sector, incl The so-called Magnificent Seven.But investors are looking for signs of improving profitability among other sectors, hoping that the S&P 500’s reliance on a handful of stocks will ease.

Revenue for the Big Seven — Apple, Microsoft, Alphabet, Amazon, Tesla, Meta and Nvidia — will rise 21 percent this year, slowing to 33 percent in 2024, according to FactSet. For the other 493 stocks in the index, earnings growth is expected to increase from 4 percent to 13 percent.

Market participants will also closely monitor executive proposals for President Donald Trump’s upcoming policy agenda, with market gains following his November election victory based in part on hopes of pro-business deregulation and tax cuts.

The threat of Trump’s actions has the potential to derail even strong revenue reforms if the president moves early on some of his tariff threats, which could hurt the outlook for multinationals.

For S&P 500 companies, 30 percent of earnings are generated outside the U.S., and every 10 percent increase in the dollar hits about 3 percent of the average company’s earnings per share.

“The difference in growth rates between the Magnificent Seven and the rest of the market is key, but after the election I’m more interested in companies’ guidance related to the pro-business narrative,” said Kevin Gordon, senior investment strategist. Charles Schwab.

“In the last quarter, we’ve seen a disparity between the frothy animal spirits and the disappointing numbers. I don’t hang my hat on the idea that it’s going to be a big growth story under Trump,” he added.

Additional reporting by Ray Douglas