Corporate America's Best Earnings In 3 Years: Will Tariffs End Wall Street's Honeymoon?

Corporate America is cheering the strongest earnings season in three years, with S&P 500 companies posting a 16.4% year-over-year earnings growth rate in fourth quarter of 2024—the best since late 2021.

Yet, despite the robust numbers, investor optimism is tempered by renewed trade uncertainty.

President Donald Trump's tariff plans have become a dominant theme on earnings calls, raising concerns about rising costs and supply chain disruptions.

Earnings Surge: S&P 500 Posts Strongest Growth Since 2021

The S&P 500's blended earnings growth rate for fourth quarter 2024 stands at 16.4%, according to FactSet‘s latest data, significantly outpacing initial forecasts. If this number holds, it will mark the strongest annual earnings growth since the fourth quarter of 2021.

So far, 62% of S&P 500 companies have reported earnings, with 77% surpassing earnings-per-share estimates and 63% exceeding revenue forecasts. The average earnings surprise stands at 7.5%, comfortably above the 10-year average of 6.7%.

The average earnings surprise was 7.5%, below the 5-year average of 8.5% but above the 10-year one of 6.7%.

FactSet highlighted that the earnings outlook has improved as more companies report results.

“On Dec. 31, the estimated (year-over-year) earnings growth rate for the S&P 500 for Q4 2024 was 11.8%. Eight sectors are reporting higher earnings today (compared to December 31) due to positive EPS surprises,” FactSet wrote.

Among the standout sectors and companies:

Financials: Earnings soared 51.2%, led by strong bank results from Goldman Sachs Group Inc. GS and JPMorgan Chase & Co. JPM.
Consumer Discretionary: Amazon.com Inc. AMZN fueled 24.6% sector growth after reporting EPS of $1.86, well above the $1.49 estimate.
Communication Services: Meta Platforms Inc. META led 30.2% growth, posting EPS of $8.02, smashing expectations of $6.76.

Tariff Fears Surge as Key Business Concern

While earnings have surprised to the upside, 146 S&P 500 companies have mentioned "tariffs" during their earnings calls—the highest number since mid-2019, according to FactSet.

If the current trend continues, the fourth quarter of 2024 could set a 10-year record for the number of companies discussing tariff-related concerns.

Industrials have been at the center of the discussion, with 39 companies citing tariff risks. The materials and utilities sectors have also been hit hard, with more than 80% of companies in these industries addressing the issue.

With Trump imposing a 25% tariff on steel and aluminum imports and hinting at reciprocal tariffs on all countries, businesses are struggling to gauge the potential impact.

Some executives have warned of higher costs, supply chain disruptions, and margin pressure, but many remain uncertain about the ultimate financial toll.

Among the S&P 500 firms providing forward guidance, 30 have chosen to exclude tariff effects altogether due to the unpredictable nature of trade policy, while 21 have incorporated tariff risks into their outlooks but widened their forecast ranges to account for potential volatility.

Also Read: McDonald’s Q4 Earnings: Stagnant Revenue Growth, US Comp Sales Decline And More

Muted Market Reaction Despite Strong Earnings

Despite the stellar earnings reports, stock price reactions have been subdued. Companies that beat EPS estimates have seen their stock prices rise by just 0.3% on average, well below the five-year average of 1.0%.

Meanwhile, stocks missing estimates have dropped 2.4%, slightly worse than the five-year average decline of 2.3%.

“To date, the market is rewarding positive earnings surprises reported by S&P 500 companies for Q4 less than average
and punishing negative earnings surprises reported by S&P 500 companies for Q4 slightly more than average,” FactSet wrote.

The uncertainty surrounding tariffs may be playing a role in this muted reaction.

Investors, while encouraged by strong earnings, appear hesitant to fully price in optimism amid concerns over potential disruptions to supply chains and rising input costs.

Looking Ahead: Will Tariffs Derail Growth?

Wall Street analysts currently expect S&P 500 earnings to grow 8.7% in the first quarter of 2025 and 10.2% in the second quarter. Yet, those forecasts could come under pressure if tariffs begin to weigh on corporate margins and consumer demand.

For now, corporate America is delivering some of the strongest earnings growth in years, but the real test may come in the months ahead as trade tensions escalate.

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