Big banks burst out of the gate yesterday like a horde of Black Friday shoppers pouring into an unsuspecting Best Buy, kicking off a new earnings season with a bang. But what does the rest of the season hold in store—and how should you invest?
Overall, all signs point to a strong few weeks for companies revealing their fourth-quarter results. FactSet expects stocks on the S&P 500 to report an average 11.7% increase in EPS for Q4, which would mark the index’s best quarterly bottom-line growth since Q4 2021.
More specifically, Wall Street believes that the earnings wins won’t all just be centered on a handful of big tech stocks this season. CNBC reports that Magnificent 7 earnings grew 33.4% in 2024, but are expected to rise just 18.6% in 2025. Meanwhile, the bottom lines of the other 493 stocks on the S&P 500 grew just 5.2% in 2024, but their earnings should pop 13% this year.
All that is to say: There are plenty of opportunities for investors to profit from this earnings season—if they know where to look.
Sectors to watch
So, what sectors should you be focused on ahead of earnings announcements?
“At the sector level, analysts forecast Comm Services (+19%) and Info Tech (+18%) will post the strongest earnings growth. Financials are expected to report a 13% increase in profits,” Goldman Sachs Chief US Equity Strategist David Kostin wrote in an earnings preview. “In contrast, consensus expects the largest earnings decline in Energy (-31%) as Brent oil prices averaged 11% lower during 4Q 2024 than during 4Q 2023.”
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Bank of America analysts led by head of US equity strategy Savita Subramanian agree that the energy sector is likely to report lower earnings, and the materials sector should lag as well. But they’re most optimistic about real estate and, surprising no one, the tech sector.
Of course, we can’t forget about the AI trade—something that Bank of America says is still alive and well. “Semis are the most obvious beneficiaries, but increased power usage from AI and the physical buildout of data centers should also lead to more demand for electrification, construction, utilities, commodities, etc., ultimately creating more jobs,” Subramanian wrote.
The big picture: Although the numbers should be solid this season, Wall Street warns that there are still plenty of questions the C-suite crew better have answers to during their earnings calls. Keep an ear out for mentions of tariffs, how a stronger US dollar will affect bottom lines, and how lower interest rates will help or hurt business.—MR