There’s a lot riding on earnings in 2025. Last year saw double-digit earnings growth in the S & P 500 , and the market is counting on another year of double-digit gains to power stocks higher. Unfortunately, earnings estimates for the first quarter have been slipping fast. On Jan. 1, earnings for the first quarter were expected to be up 12.2%. Now, that is down to 8.5%. That’s a decline of 3.7 percentage points, making it the biggest downward quarterly revision since the fourth quarter of 2023. (Walmart on Thursday was the latest example of poor guidance, saying earnings for the fiscal year may fall short of expectations.) Source: LSEG While that is not a huge downward revision, we still have another six weeks to go in the quarter. “I think the acceleration of the revision thus far is noteworthy at the very minimum,” Tajinder Dhillon, senior research analyst at LSEG, said in an email to CNBC. What’s causing the decline in S & P earnings estimates? The good news is that so far the companies that are seeing the biggest downward earnings revisions add up to a fairly small group, and there are some obvious reasons why analysts are lowering estimates. Here are the companies that are making the biggest contribution to that decline of 3.7 percentage points. Biggest contributors to the decline in Q1 earnings estimates (change in percentage point) Ford down 0.41 Chubb down 0.22 Apple down 0.21 Travelers down 0.20 Allstate down 0.12 Bristol Myers Squibb down 0.11 Tesla down 0.11 Boeing down 0.10 Source: LSEG What this means is that Ford , for example, is responsible for 0.41 percentage point of that decline of 3.7 percentage points in the S & P 500 estimates. There are a few points to be made about this list: There are several insurance companies ( Chubb , Travelers , and Allstate ) which have all mentioned losses related to the Los Angeles wildfires. There are a couple of auto companies like Ford and Tesla . Ford projected up to $5.5 billion in losses in its electric vehicle segment this year. There’s Boeing, which reported a fourth-quarter loss of nearly $4 billion due to production quality issues and a machinist strike. Another factor that may be impacting estimates is continued dollar strength, which is weighing on U.S. companies with large overseas business. Companies like Amazon, Honeywell and Levi Strauss gave disappointing sales forecasts as they said the stronger dollar will continue to be a significant burden in the coming months. Here’s the good news First, the group of companies getting downward revisions is relatively small, in different industries, and there are obvious reasons for revisions. Second, aside from a small downward revision by Apple analysts, Big Tech is not — yet — a large contributor to the earnings decline. Third, analysts are not dramatically lowering estimates for companies that could be affected by full implementation of tariffs — yet. Analysts are saying, in effect, that we don’t know if these are going to be implemented, so we are not making any dramatic adjustments thus far. But here is a warning from Ford’s call: “There’s no question that tariffs at 25% level from Canada and Mexico, if they’re protracted, would have a huge impact on our industry, with billions of dollars of industry profits wiped out and adverse [effects] on the US jobs, as well as the entire value system in our industry.” Here’s the bad news What drove the S & P 500 up last year was large earnings beats by big cap tech, particularly the Magnificent Seven. 2024 earnings Magnificent Seven: up 36.5% Ex-Magnificent Seven: up 6.4% Source: LSEG While big cap tech is still providing positive earnings surprises, the rate of change is slowing down. Magnificent Seven earnings are still growing, but they are decelerating. 2025 earnings (estimates) Magnificent Seven: up 16.9% Ex-Magnificent Seven: up 9.9% Source: LSEG That means betting that Nvidia shares, for example, will be up another 171% (as it was in 2024) is very problematic. The bottom line: Earnings are still growing for Big Tech, but the growth is decelerating. This is putting a lot of pressure on the other 493 stocks. Earnings have to expand because there is very little room for the market multiple to grow The S & P 500 is currently trading at a multiple (price-to-earnings ratio) of 22.6, just off the multi-year high of 23.1 in early December and well above its long-term average of roughly 17. High multiples like these mean that investors are paying more than the historic average for each dollar of earnings. It’s a sign investors are expecting significantly higher profits in the next year. Now the profits have to deliver, or the market is not going to keep hitting new highs. Some are hopeful that some overseas earnings growth will occur this year. Many are encouraged that overseas stocks — Europe and China — are finally showing some signs of life. “You are seeing Europe perk up, China stimulus is in place, so you could see higher earnings growth than that, and that 22 multiple won’t be so scary,” Chris Hyzy, managing director and chief investment officer supporting Bank of America Private Bank, said on our air Tuesday .
