Earnings Crush Expectations, now we wait for deals and bills

Trump is committed to passing the TAX and Spending bills by July 4th!

• Here are the trade deals we need progress on 👇🏽

• Outside of trade deals and tax bills, the environment for risk assets is SOLID!

Strong Earning Humble Guidance

Q1 2025 S&P 500 earnings exceeded expectations, but guidance is "cautious on trade policy," indicating uncertainty is priced in, allowing for potential positive surprises if trade policy improves.

Positive Surprise, Humble Guidance

S&P 500 companies exceeded Q1 2025 earnings expectations, showing double-digit growth and many positive surprises. Yet, macroeconomic uncertainties cloud the outlook, leading to more cautious management guidance for the year.

Earnings Performance

• The S&P 500 delivered a notably strong Q1 2025 earnings season, with results broadly beating expectations. By late May, almost all companies reported year-over-year earnings growth of 12.8% to 13.4%, significantly above the 7.2% projected at the end of March.
• Companies reported that year-over-year earnings growth for the index reached between 12.8% and 13.4%, substantially above the 7.2% projected at the end of March.
• Approximately 78% of S&P 500 companies reported earnings per share (EPS) above analyst estimates, which is slightly above the 5-year (77%) and 10-year (75%) averages.
• The average magnitude of these EPS beats was 8.2% to 8.5%, better than the 10-year average of 6.9%, though just below the 5-year average of 8.8%

Revenue and Sector Trends

• Revenue surprises were less widespread: 64% of companies beat revenue expectations, but only 48% beat sales estimates according to some sources, marking the highest sales miss rate since early 2020
• Eight of eleven sectors reported year-over-year earnings growth, with Health Care, Communication Services, and Information Technology leading the gains. The “Magnificent 7” tech giants were again major contributors, posting 27.7% earnings growth and exceeding expectations by nearly 15% in aggregate

Market and Guidance Context

• Despite strong Q1 results, management teams have issued cautious guidance for coming quarters, citing uncertainties around trade policy and tariffs
• The S&P 500’s net profit margin for Q1 was 12.7%, up from 11.8% a year ago and above the 5-year average of 11.7%
• Valuations remain elevated, with the forward 12-month price-to-earnings (P/E) ratio at 20–21, above both the 5- and 10-year averages

Slowing but Stable Economy

Weak sentiment Solid Employment: The jobs report and ISM reports combine to indicate that the economy is still expanding, but at a slower annual pace.

Service Employment remains better than Manufacturing.

Jobless claims are creeping up while job growth is softening.

More people are staying unemployed ( closer to the FED's 1st cut)

Weakness in Ordering reflects "cautious guidance."

High-Yield spreads suggest Investors are not concerned with recession. Corporate caution is not a sign of recession; it's a sign of conservatism, lower prices, and slower growth. Ironically, this would lead to the Fed cutting in JULY.

Rising Liquidity is steroids for RISK assets

• QBTS - Quantum up 200% in 21 days (quantum computing)

• CRCL - Stable coin issuer up 90% in 2 days (IPO)

• SERV up 150% (Robotics)

Investor Risk Appetite is strong!

Microcaps have a market cap between 50 million and 300 million, versus Small Caps, which have a market cap between 300 million and 2 billion.