What Q4 Earnings Reveal About the Stock Market

Archive edition · Market data and company circumstances reflect 1 March 2025, when this newsletter was sent.

Earnings Season Insights: What Q4 Reveals

As the Q4 earnings season nears completion, with 77% of the S&P 500 companies having reported their results, investors and analysts alike are piecing together a clearer picture of corporate performance and broader economic trends.

Earnings reports are more than just numbers—they offer a real-time snapshot of business sentiment, consumer demand, and investment flows. By analyzing these results, we can gauge the resilience of different sectors, identify key market drivers, and assess the overall economic landscape heading into the new quarter.

Let’s take a deep dive into earnings trends and macroeconomic signals that will help us navigate opportunities and risks in today’s dynamic market.

Steady Revenues, Strong Consumers

One of the strongest signals from the Q4 earnings season is the continued resilience of the U.S. consumer and corporate revenue growth. Excluding the volatile energy sector, real corporate revenues grew at a healthy 3.2% year-over-year, indicating sustained economic expansion. This growth aligns with historical expansion averages, reinforcing that economic activity remains robust.

Company commentary further supports this view, as executives across multiple industries emphasized steady consumer spending. A proprietary sentiment measure based on earnings call discussions revealed that consumer-related optimism reached its highest level in three years.

Despite recent weaker retail sales data for January, strong real income growth and healthy household balance sheets suggest that consumer spending will continue to be a key driver of economic momentum.

New Trade Tariffs, Old Worries

Tariffs dominate management discussions more than ever before.

The resurgence of trade war concerns has introduced uncertainty into corporate investment strategies. References to tariffs in management discussions surged in Q4, surpassing levels seen during the previous trade war period.

President Trump’s recent imposition of new tariffs on Canada, Mexico, and China has reignited fears of retaliatory actions and supply chain disruptions.

Although tariffs on Canada and Mexico were delayed until March 4, the ongoing USMCA review means that tariff risks will persist at least until mid-2026.

Companies with significant exposure to tariffs have revised their capital expenditure (capex) expectations downward. While overall capex forecasts for the S&P 1500 ($SP1500) increased by 5% in the last quarter, the increase was only 2% for tariff-exposed companies, and firms heavily reliant on Canadian, Mexican, and Chinese trade even saw a 1% decline in expectations.

Many companies indicated plans to pass along higher costs to consumers, reinforcing the likelihood of an inflationary impact.

Historical data suggests that tariffs generally translate into higher consumer prices, with current estimates projecting a 0.4% boost to core inflation in 2024.

Additionally, some firms are accelerating inventory purchases ahead of new tariffs, while others are restructuring supply chains to mitigate exposure. A long-term trend has emerged where U.S. manufacturers have shifted imports away from China in favor of Mexico and other Asian countries. However, despite these adjustments, overall reliance on foreign manufacturing has not diminished significantly.

Financial & Energy Sectors Eye Policy Shifts

The potential for deregulatory tailwinds has been a topic of significant interest among investors, particularly in financial ($XLF) and energy ($XLE) sectors. While management teams expressed optimism about a deregulatory boost, there remains uncertainty around the timing and scope of regulatory changes. A historical analysis of policy shifts during the first Trump administration suggests that deregulation's economy-wide impact may be limited in the near term.

Investor enthusiasm initially drove a rally in bank and energy stocks following the election, but these gains have since moderated. However, broader economic sentiment has improved sharply, with the Institute for Supply Management (ISM) index hitting a two-year high in January. This improvement has contributed to rising capex expectations, signaling that businesses are increasingly willing to invest despite geopolitical and regulatory uncertainties.

AI: More Spending, But Limited Impact

35% of management teams discussed AI in their Q4 earnings calls.

Discussions about artificial intelligence (AI) reached new highs in Q4, with approximately 35% of Russell 3000 ($RUA) companies and 50% of S&P 500 ($SPX) firms mentioning AI in their earnings calls. This increase was largely driven by developments in AI model efficiency, including DeepSeek's breakthrough in reducing training costs.

While some analysts speculated that declining compute costs could dampen AI-related capex, investment expectations have remained strong. Companies competing in the AI sector, such as NVIDIA ($NVDA), Microsoft ($MSFT), and Alphabet ($GOOGL), are likely to increase spending to maintain their competitive advantage. As a result, analysts have raised—not lowered—their forecasts for 2025 AI-related investments.

Despite AI’s increasing presence in corporate discussions, its macroeconomic impact remains limited for now.

AI-driven automation has yet to significantly influence GDP growth, and adoption rates are still in their early stages.

Management teams primarily cited AI for operational efficiency improvements, particularly in customer service automation and software development.

Archive note

This article preserves the analysis in our weekly newsletter sent 1 March 2025. Market prices, forecasts and company circumstances reflect the time of publication and may have changed.

This material is general information, not personal financial advice or a recommendation to trade. Investing and trading involve risk, including loss of capital.