Earnings wrap: What it means for market volatility and company insights

3 minute read

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Market volatility in April focused heavily on macroeconomic factors, particularly the impact of President Trump’s tariffs on various countries and consumers. As we concluded the latest round of earnings from US-listed companies, we took the opportunity to assess what these companies are saying both about their delivered earnings and their expectations for the future.

Firstly, it's worth noting that earnings reports have been reasonably positive. With around 80% of the 1,000 largest listed companies in the US having reported earnings, approximately 75% have exceeded market expectations, with an aggregate surprise of around 8%. Moreover, aggregate quarterly earnings have grown by over 10% annually. Historically, stock prices tend to move with earnings, and if companies are growing earnings and surpassing market expectations, this should provide a solid tailwind to stocks.

These historical numbers are promising, but what can we infer for the coming quarters? We focus on three key themes: consumer health, capital expenditures, and tariffs.

Consumer health

Though we're not seeing levels akin to those preceding the Global Financial Crisis of 2008, banks are generally reporting a slight increase in loan losses on the consumer side, especially related to credit card debt, which is more heavily used by lower-income groups. Broader spending trends also show signs of weakening demand, particularly for large purchases, as indicated by reports from homebuilders and white goods companies. However, certain areas remain buoyant; for example, experiences and entertainment companies report continued growth, suggesting consumers are still spending on experiences.

Capital expenditures / AI

The ‘hyperscalers’ (companies like Amazon and Meta) have made significant capital expenditures over recent years and plan to continue substantial investments over the next year. Though growth rates are slower than in prior years, figures in the order of 30-40% are still very strong. Business-to-business companies, such as software and consulting services, have continued to grow strongly too, though some have indicated anticipated softness in client demand.

Tariffs

Commentary about tariffs has increased notably this quarter following the ‘Liberation Day’ announcements. While significant, the impact is not anticipated to be the same across all companies. Several companies have emphasised their ability to benefit from a domestically-oriented supply chain. Where companies expect challenges, discussions have centred on the extent to which they can pass on costs or might suffer margin impacts.

Summary

In summary, a modestly positive outlook seems appropriate. Although the environment is weakening as companies digest the impact of tariffs, corporate earnings growth remains meaningfully positive. We know corporate earnings typically fall before the economy enters a recession, and as we’ve seen limited signs of an outright fall in earnings, this leads us to a more favourable view of the outlook for equities. However, it's not the time to be overly aggressive; policy risk is high, and although tough policy statements often end up being softer in practice, managing through bouts of volatility is crucial.

Portfolio manager blog - this week written by

Sacha Chorley

Portfolio Manager

Sacha is a portfolio manager of the Quilter Investors Cirilium and Creation Portfolios. Prior to joining Quilter Investors in 2011, Sacha worked at Broadstone with their team of economists before moving into asset allocation and fund manager research.

Sacha is a CFA charterholder and has also completed the Chartered Alternative Investment Analyst qualification. Sacha has a degree in Maths from the University of Bath.