Investors Eye Q4 Earnings as U.S. Economy Faces Tariff Concerns and Regulatory Changes Under Trump
As the U.S. gears up for the fourth-quarter earnings season of 2024, investors are closely watching whether technology giants and other major companies can maintain their momentum from a stellar year. After a remarkable 2024 that saw the S&P 500 rise by 23%, marking its second consecutive year of gains over 20%, market participants are eager to assess whether this strong performance will continue into 2025.
The earnings reports are expected to reveal if technology and communication services, which had the largest sector gains last year, will continue to lead the charge. Analysts are projecting an overall 9.6% increase in earnings for S&P 500 companies in the fourth quarter, slightly surpassing the 9.1% growth from the previous quarter. Companies like Nvidia, Microsoft, and Alphabet have been significant drivers of this growth, fueled by the rush into artificial intelligence (AI) technology.
Despite the strong market performance in 2024, investors remain cautious as the new year starts. The S&P 500 is currently trading at 21.5 times forward earnings, which is above its 10-year average of about 18, suggesting that stocks may be becoming expensive. As a result, market analysts emphasize the importance of companies delivering solid profit growth to justify these higher valuations. “We’ve had a lot of multiple expansion over the last couple of years, but now we need to see profits follow through,” said Anthony Saglimbene, Chief Market Strategist at Ameriprise Financial.
The strong performance from technology-related companies in 2024 is expected to extend into the fourth quarter, but financials are also predicted to show impressive growth, with an estimated 17.5% quarterly profit increase. Additionally, sector growth is expected to broaden in 2025, with healthcare taking the lead, followed by technology, and stronger performances in industrials, materials, and energy. According to Stephanie Lang, Chief Investment Officer at Homrich Berg, “Growth rates are picking up from 2024 to 2025,” highlighting a positive outlook as earnings expand across more sectors.
Alongside earnings reports, the business world is paying close attention to the policy changes anticipated from President-elect Donald Trump, who will be inaugurated on January 20, 2025. Investors are particularly focused on how Trump’s plans for higher tariffs, deregulation, and tax policies might impact the U.S. economy and corporate profits in the coming year. There is significant uncertainty surrounding Trump’s potential approach to tariffs, which could increase consumer prices and disrupt trade with both allies and adversaries.
One of the most closely watched developments is Trump’s consideration of declaring a national economic emergency, which would give him the legal grounds to implement universal tariffs without Congressional approval. Timothy Chubb, Chief Investment Officer at Girard in Pennsylvania, noted that the timing and implementation of these tariffs could significantly affect the broader economy. He also expressed interest in hearing from the banks about the possible impact of deregulation on their earnings growth.
In addition, investors are looking for any insights into the future direction of interest rates, especially whether the Federal Reserve will continue to cut rates as part of its current easing cycle. Companies are expected to provide commentary on the resilience of U.S. consumers and the strength of the economy, which has defied expectations of a slowdown so far.
As the earnings season unfolds, all eyes will be on how U.S. corporations respond to these challenges and opportunities, and whether the strong growth witnessed in 2024 will continue into 2025. The outlook for the market remains highly uncertain, and it will be crucial for companies to meet or exceed expectations to justify the elevated stock valuations heading into the new year.
