Q1 earnings preview

Amid geopolitical tensions, tariffs, and policy uncertainty, retail investors are turning bearish—moving out of equities and sitting out recent dips after last year’s risk-on run. At the same time, baby boomers are beginning to draw down their portfolios, shifting into safer assets or cash to fund retirement, adding another layer of selling pressure.

Institutional investors are following suit: Commodity trading advisors (CTAs) dumped roughly $55 billion of US equities last month, and have now flipped net short by about $18.4 billion.

It’s understandable why investors are feeling jittery. There’s just one problem: They’re getting this all wrong.

Earnings tell a different story

Earnings season kicks off next week, and the pros are predicting one of the best reporting periods in recent memory.

Wall Street is forecasting roughly 16% Q1 earnings growth for the S&P 500, the strongest in four years. Deutsche Bank is even more bullish, predicting 19% earnings growth due to improving cyclical trends and a weaker dollar, which just posted its sharpest quarterly drop in about five years.

In addition, among companies issuing outlooks, 54% expect earnings to beat expectations—well above the five-year average of 42%, and the highest share since 2021. On top of that, a record number of firms have issued positive revenue guidance for this quarter.

Sectors to watch

This earnings rebound is likely to be driven by a handful of key sectors, according to Deutsche Bank.

• Mega-cap and tech are expected to see earnings growth jump to nearly 36%, up from 27.5% last quarter, with semiconductor companies at the center of that acceleration.
• Financials are another bright spot: Bank stocks are starting to look attractive, trading at roughly 12x forward earnings—a 40% discount to the S&P 500’s 20x. Earnings growth in the financials sector is expected to rebound from around 11% last quarter to 20%.
• Earnings growth for industrials is expected to accelerate from 2.8% to 7.9%, driven by AI demand and improving manufacturing activity, while consumer cyclicals may stabilize as earnings declines narrow from 7.5% to 1.6%.

Bottom line: Investors are bracing for uncertainty, but earnings are what ultimately drive stock prices over the long run—and while it’s easy to get caught up in geopolitical headlines and policy noise, the underlying fundamentals are still holding up. Maybe markets need a new version of EBITDA: earnings before Iran, tariffs, and Donald announcements.—SY