Q4 Earnings Show Slowing Growth
The Q4 2025 earnings season has concluded with S&P 500 companies showing aggregate growth, but at a slower rate than in previous quarters. Technology sector leaders exceeded expectations, driven by demand for AI and cloud computing. However, industrials and consumer cyclicals posted more muted results, reflecting inflationary pressures and cautious consumer sentiment.
- The blended year-over-year earnings growth for the S&P 500 was approximately 13.1%, marking the tenth consecutive quarter of positive earnings growth for the index. Around 76% of companies beat their earnings per share (EPS) estimates. - Excluding the technology sector's strong performance, the earnings growth for the rest of the S&P 500 would have been significantly lower, dropping from a projected +6.9% to +3.6% according to early estimates. Tech companies that have reported saw earnings rise 17.4% on a 15.6% increase in revenues. - Despite muted results, the Industrial Products sector saw earnings increase by 5.6% on revenue growth of 12.1%. This sector, along with Energy and Utilities, experienced notably positive stock price reactions following their Q4 announcements. - The Consumer Discretionary sector was projected to be a laggard, with some forecasts anticipating a year-over-year decline in earnings due to more "value-conscious" shoppers. Broader consumer trends show a 5% decline in retail conversion rates as shoppers now spend more time on research before making purchases. - The forward 12-month price-to-earnings (P/E) ratio for the S&P 500 stands at 21.5, which is above both the 5-year average of 20.0 and the 10-year average of 18.8. - For the upcoming first quarter of 2026, a greater number of S&P 500 companies have issued positive EPS guidance compared to negative guidance (38 positive vs. 31 negative). Analysts are forecasting an earnings growth rate of 11.1% for Q1 2026. - The backdrop for these earnings included a U.S. annual inflation rate that declined to 2.7% in December 2025 and a series of interest rate cuts by the Federal Reserve in late 2025. - Locally, the unemployment rate in Santa Ana was 3.8% in December 2025, lower than California's statewide rate of 5.5% and the national rate of 4.4% for the same period.
