Earnings Growth Shows Mixed Results During First Quarter
Earnings Watch: U.S. and emerging markets made progress while Europe and Japan experienced negative growth.
Key Takeaways
The threat of U.S. tariffs left businesses rethinking their plans for 2025.
Investing in AI remains a strategic priority for large technology companies like Meta and Amazon.
U.S. consumer spending persisted in the first quarter, but some businesses are starting to see warning signs.
Global earnings growth was mixed in the first quarter as tariff uncertainty cast a shadow over companies’ plans and threatened to scramble international supply chains.
The turbulence around trade and geopolitics might create an opportunity for some companies. The EU announced plans for higher defense spending, which could help select firms.
Earnings highlights from individual regions include:
The S&P 500® Index reported year-over-year earnings growth for the seventh consecutive quarter.1 Health care, communication services and utilities had the strongest earnings growth. Energy, consumer staples and materials were the weakest.
In Europe, earnings growth was negative.2 Energy, consumer discretionary and communication services were the weakest areas, while IT, utilities and industrials were the strongest.
Japan recorded earnings growth of -14.6% as consumer discretionary, utilities and financials were the weakest sectors.3 Consumer staples, communication services and real estate served as sources of strength.
Emerging markets stayed positive with earnings growth of 15.6%.4 IT, industrials and utilities led. The weakest areas included real estate, energy and consumer discretionary.
To gain a deeper understanding of the current market conditions and future expectations, explore our latest Investment Outlook.
Five Trends Impacting Earnings Growth
1. U.S. Tariff Policy Is Disrupting Global Markets
More details about changes to U.S. tariff policy are emerging, but significant uncertainty remains.
The number of S&P 500 companies mentioning “uncertainty” in their earnings calls more than doubled compared to the previous quarter.5 Higher tariffs could splinter international supply chains or push companies to postpone capital expenditures and other investments.
However, some firms are highlighting ways to soften the potential impact of tariffs. For example, 3M said it may adjust where and how its goods are produced.6
The company could ship semifinished goods to the countries where they’re sold and fully finish them after arrival. Doing so would lower the items’ value and, in turn, reduce their tariff exposure.
“And we're looking at alternative production sites with different countries of origin to try to optimize the network and minimize the tariff impact on our business.”
Bill Brown, 3M CEO, and Co-Chair, Board of Directors
2. Europe Proposes New Defense Stimulus
As concerns grow about U.S. reliability, the EU rolled out a framework for boosting defense spending, which could bolster the region’s defense industries.
The EU plan includes a 150-billion euro fund that member nations could tap for defense projects.7 The fund would direct most disbursements to companies in the EU, the European Economic Area, the European Free Trade Association and Ukraine.8
EU countries could also deviate from the bloc’s fiscal rules and put an extra 1.5% of their gross domestic product into defense.
These new policies could generate more than 800 billion euros in additional defense spending.
3. Big Tech Doubles Down on AI in 2025
Some of the largest tech companies are accelerating their investments in artificial intelligence (AI) despite the recent debut of DeepSeek. The creation of this lower-cost AI model raised the question of whether firms would continue spending significant sums on infrastructure.
In February, though, Amazon announced plans to spend more than $100 billion on CapEx, up from $78 billion last year. Most of the money will go toward AI projects related to its cloud business.9
Meta also said it would raise its CapEx budget beyond what was previously planned for this year. Instead of spending $60 billion to $65 billion, the new plan calls for an outlay of $64 billion to $72 billion.10
Doing so will let the company add capacity faster, allowing it to progress on AI projects that could fuel growth, such as AI-generated advertisements.
“I want to make sure that we’re working aggressively and efficiently, and I also want to make sure that we are building out the leading infrastructure and teams that we need to achieve our goals.”
Mark Zuckerberg, CEO, Meta Platforms
4. U.S. Consumers Start to Show Mixed Signals
While consumer sentiment weakened over the first quarter, U.S. consumer spending increased at a slowing rate.11
In its most recent earnings call, Visa described consumer spending as resilient and strong, with spending growing fastest among the most affluent households.12 However, the company said areas such as travel experienced slower growth.
Booking Holdings, the owner of Booking.com, Priceline and other brands, noted signs of a “bifurcated economy” in the U.S.13 Higher-rated, higher-end hotels tended to fare better than those with fewer stars.
Companies like Pepsico and Starbucks also pointed to signs of a tougher consumer environment.14 McDonald’s U.S. comparable sales shrank by 3.6% during the quarter.15
5. Banks Are Benefiting from Tariff Turmoil
President Donald Trump’s tariff announcements appear to have generated a tailwind for banks during the first quarter. Their trading revenues surged as investors added and trimmed their holdings to adapt to market uncertainty.
A group of the largest Wall Street banks made almost $37 billion from trading, their best results in more than 10 years.16 And a group of Europe’s five largest banks earned 13 billion euros from trading, their best performance in at least a decade.17
Over the long run, though, tariff uncertainty could present a risk if it scares investors into keeping their money on the sidelines.
Earnings Forecast: U.S. and EM Could Outpace Europe, Japan
Analysts expect S&P 500 earnings to expand by 4.77% in the second quarter.18 The full-year forecast calls for earnings growth of 8.97%, lower than previous estimates.
Growth might end up lower in other developed markets. Analysts predict -17.95% Japanese growth in the second quarter and an increase of 5.94% for 2025.19 European equities are expected to record 0.80% growth in the second quarter and a gain of 1.69% for the year.20
Emerging markets could see 4.44% growth for the second quarter and 10.59% for 2025.21
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S&P 500 Index, as of 5/20/2025.
MSCI Europe Index, as of 5/20/2025.
MSCI Japan Index, as of 5/20/2025.
MSCI EM Index, as of 5/20/2025.
John Butters, “Highest Number of S&P 500 Companies Citing ‘Uncertainty’ on Earnings Calls Since 2020,” FactSet, May 19, 2025.
3M, Q1 2025 Earning Call Transcript, April 22, 2025.
European Union, “White Paper for European Defense – Readiness 2030,” March 19, 2025.
European Commission, “Proposal for a Council Regulation Establishing the Security Action for Europe (SAFE) Through the Reinforcement of European Defence Industry Instrument,” March 19, 2025.
Charles Rollet, “Amazon Doubles Down on AI with a Massive $100B Spending Plan for 2025,” TechCrunch, February 6, 2025.
Meta Platforms, First Quarter 2025 Results Conference Call, April 30, 2025.
Federal Reserve Bank of St. Louis – FRED, University of Michigan: Consumer Sentiment, as of March 1, 2025; U.S. Bureau of Economic Analysis, “Gross Domestic Product, 1st Quarter 2025 (Advance Estimate),” News Release, April 30, 2025.
Visa, Q2 2025 Earnings Call, April 29, 2025.
Booking Holdings, CEO and CFO Prepared Remarks for 1st Quarter 2025, April 29, 2025.
Pepsico, Q1 2025 Earnings Call, April 24, 2025; Starbucks, “Starbucks Reports Q2 Fiscal Year 2025 Results,” April 29, 2025.
McDonald’s, “McDonald’s Reports First Quarter 2025 Results,” Earnings Release, May 1, 2025.
Joshua Franklin, “Wall Street Banks Reap $37bn from Trump Trading Boom,” Financial Times, April 15, 2025.
Simon Foy and Joshua Franklin, “European Bank Traders Deliver Best Results in More Than a Decade,” Financial Times, May 5, 2025.
S&P 500 Index, as of 5/20/2025.
MSCI Japan Index, as of 5/20/2025.
MSCI Europe Index, as of 5/20/2025.
MSCI EM Index, as of 5/20/2025.
Forecasts are not a reliable indicator of future performance.
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