Every three months, we take a snapshot of the expectations for future earnings in the S&P 500 (Index: SPX) at approximately the midpoint of the current quarter, shortly after most U.S. firms have announced their previous quarter's earnings.

The latest snapshot comes 87 days after the Winter 2025 snapshot. Since that snapshot, the outlook for earnings has dimmed, with significantly lower growth anticipated in the quarters ahead.

The change over the past three months is larger than the typical pattern that earnings forecasts follow. Here, expectations for future earnings tend to erode with each later snapshot, usually by relatively small amounts from quarter to quarter. It is unusual for the earnings forecast to improve from snapshot to snapshot.

Two major events have occurred during the last three months that have knocked the earnings forecast lower. First, a deflation phase for the AI-bubble got underway, starting on 21 February 2025 when the company behind China's DeepSeek Artificial Intelligence (AI) system announced they would make its code open source. That serious new competition put a cap on the potential earnings of the "Big Tech" firms making big AI-related investments.

Second, President Trump's 'Liberation Day' tariff announcement after the market closed on 2 April 2025 knocked the earnings outlook for many other firms lower, at least through the time of this snapshot. This snapshot only captures a little over a week's worth of the recent surge of deal-making momentum that's driven stock prices higher in recent weeks.

Of the two events, the deflation of the AI-bubble has been the bigger force shaping future earnings expectations.

The following chart, covering how earnings expectations have changed from the end of 2021 through 9 May 2025:

The current projection for the S&P 500's earnings per share through the end of 2025 is $241.33, which would represent 14.8% year-over-year earnings growth over December 2024's finalized level of $210.17.

Looking further forward through the index' expected earnings per share through the end of 2026, Standard & Poor projects the S&P 500's earnings per share will be $276.88, down 4.4% from its initial estimate of $289.64 per share.

Reference

Silverblatt, Howard. Standard & Poor. S&P 500 Earnings and Estimates. [Excel Spreadsheet]. 9 May 2025. Accessed 16 May 2025.

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