The big things you need to know: First, it was another week of stabilization on the earnings stats we track, helping to support the recent stabilization in equity market pricing. Second, there was a little less conversation about tariffs in last week’s earnings calls, which left some additional room for discussions on the health of the consumer and the impacts of non-tariff policy changes. Third, in our other weekly updates, the thing that jumps out is that when we bake in current consensus assumptions on key macro variables and bottom-up EPS for 2025, the S&P 500 ended the week roughly in line with where our model says fair value for the index should be at year-end.

tarting With Takeaway #1: It Was Another Week of Stabilization on the Earnings Stats

• Earnings sentiment (the percent of sell-side EPS estimate revisions to the upside) also inched up to 30% from 28%. The prior 28% level is about as low as this indicator tends to go outside of COVID, the GFC, and the Tech bubble.

• Interestingly, both the top 10 names and the rest of the market have fallen to levels that typically mark their low point on this indicator, another piece of evidence arguing that the recent stabilization in equity prices is supported by fundamentals and that pessimism on the biggest market cap names may have run its course for now.

• We are still seeing companies that beat consensus EPS forecasts outperform the broader market in terms of immediate stock price reaction. The margin of outperformance has been wider than usual, suggesting to us earnings dynamics, not just the apparent pivot on trade policy, have been pushing the US equity market higher.

• That being said, this phenomenon does appear to be losing some intensity since mid-April, suggesting to us that the US equity market may soon demand another catalyst to keep the recovery going.

Takeaway #2: There Was More Room for Consumer & Non-Tariff Policy Discussions on Last Week’s Earnings Calls

Here are some key themes based on our reading of last week’s S&P 500 earnings calls:

• On the overall macro, comments seemed more skewed to those with a more negative bias. Those with more of a positive bias emphasized the lack of change in customer behavior, stable demand, company efficiencies, the idea that the US will avoid a recession, manageable tariff impacts, and being on track for current guidance despite tariffs.

o Outlook comments with more of a negative tone emphasize recently “tumultuous” news flow, weaker trends in February/March and/or April, cautious customers, lack of Fed rate cuts, a slowdown in decision making, and high uncertainty.

• We got much more color on the consumer last week, mostly from restaurants, food companies, cruise lines, casinos, credit card companies, and travel-related companies. Positive comments tended to emphasize stable operating and spending metrics and low delinquencies, with some emphasizing they had seen no change in behavior.

o Like broader outlook discussions, we found more comments with a negative vibe, which tended to emphasize the adverse impact of lower consumer confidence levels on demand (or their potential to have an adverse impact), pressures on snacking and smoking, low-income weakness, a decline in length of stay for trips or shorter lead times for bookings, softer DIY purchases, and the idea that consumer pressures predated tariffs.

o In general, what we’re seeing in this reporting season is that companies that take a higher-level look at the consumer are saying things are fine, while those with a closer vantage point sound more worried.

• On tariffs, we didn’t learn too much in the way of new information after the prior week’s avalanche of Industrials earnings. With a heavier dose of Tech companies taking the spotlight from the Industrials sector, the tariff discussions overall seemed a bit less front and center as well.

o Positive comments on tariffs tended to emphasize mitigation strategies, footprint adjustments either in the future or the past, pricing, USMCA compliance, and an ability to manage through.

o More negative comments tended to center on fluidity of the policy backdrop, heightened uncertainty, and a difficulty in knowing where the policy will settle.

o We don’t have a great feel for the exact contours at the moment, but have been paying close attention to discussions of the timing of impacts for when mitigation strategies go into effect or stop having an impact.

o We’ve also been paying close attention to whether companies are talking about a pull-forward of demand, a pause in demand/decisions, or delays, and for now the discussion still seems to be that all of the above are happening. Sequencing and timing are likely to be in focus in the next reporting season.

• There seemed to be more airtime available for non-tariff policy discussions in last week’s earnings calls, at least based on the companies we read. Once again, the tone on this topic was mixed. Negative comments tended to coalesce around the impacts of spending cuts (DOGE, NIH, and academic institution related). Positive comments tended to center on tax and regulation.

• FX discussions once again stood out to us in our reading last week, with a number of companies in different industries saying the weaker USD of late helped mitigate some of the pressures that had been in place from a stronger dollar previously

• As noted last week, what we’ve read in reporting season keeps us in the camp that recession is not a foregone conclusion, but also adds to our concern that investors had gotten too worried about the near term but perhaps not worried enough about the intermediate-to-longer term. We’ve also argued that there are two different perspectives at play on the consumer, which have added to investor confusion. We also noted that managing tariff impacts appear to be a work in progress, but that corporates have generally done a good job of articulating the work that has been done and is underway and of reminding investors that they are skilled at managing through periods of challenge.

• We’d add that we expect the next reporting season for calendar 2Q25, which will take place from mid-July to mid-August, to be a time in which we gain a much better understanding of how all of these issues are evolving, as well as the path that trade and tax policy are on.

Wrapping up with Takeaway #3 – the other big thing that jumps out on our updates.

• This one relates to our valuation model, which comes up with a fair value for the S&P 500 at the end of the year based using macro assumptions on inflation, 10 year yields, and the Fed along with various EPS assumptions.

• The consensus is a bit more optimistic on inflation and economic growth than the assumptions that go into our own year-end 2025 S&P 500 forecast, but we found this output interesting nonetheless as we think it suggests the US equity market is baking in a very moderate stagflation backdrop at current levels.

• We think the recent rebound has been reasonable. Though in our view, US equity market pricing is likely to stay reactive to any new shifts in assumptions about the macro backdrop in the months ahead.