Sep 2, 2025 · 33 min · 12 segments
Assessing US earnings and economic trends during one of the broadest policy shifts since FDR; partisan redistricting, the Supreme Court, the Census and the balance in the US House of Representatives…
Michael CembalestHostAnd with the recently passed reconciliation bill, it's going to provide a little bit of an additional boost for reasons I'll explain.
In the beginning of the year, expectations for Q2 earnings were around 11%.
They sank to 4%, and they came in at around 11%, so right where the year started.
The MAG7 stocks are continuing to grow earnings at around twice the pace of the rest of the market.
There was no profitability in Europe, so wake me when European profitability wakes up.
More companies had positive earnings revisions looking out over the next couple of years than negative revisions for the first time since early 22.
Large cap profit margins are pretty resilient, of course, led by tech, but also some recent improvements in the industrials and consumer discretionary.
Um, and then as I mentioned, there's some corporate tax provisions in the reconciliation bill.
They're pretty meaningful, but they're meaningful from a time shifting incentive perspective.
They're just providing you the present value incentive to invest today rather than in the future.
So you can defer some taxes, but, uh, they can, they might boost cashflow by three or 4%.
And no smoking guns here for people that thought they would start to see already some of the tariff stuff showing up in either Q2 earnings, or more importantly, guidance and earnings revisions.
Part of it could be, I think you have to remember, while the economy is 70% driven by the consumer, The S&P 500 particularly is really a production index, 60% or so, maybe even a little more of market cap and earnings in the S&P are the production side of the economy rather than consumption.
And with the recently passed reconciliation bill, it's going to provide a little bit of an additional boost for reasons I'll explain.
In the beginning of the year, expectations for Q2 earnings were around 11%.
They sank to 4%, and they came in at around 11%, so right where the year started.
The MAG7 stocks are continuing to grow earnings at around twice the pace of the rest of the market.
There was no profitability in Europe, so wake me when European profitability wakes up.
More companies had positive earnings revisions looking out over the next couple of years than negative revisions for the first time since early 22.
Large cap profit margins are pretty resilient, of course, led by tech, but also some recent improvements in the industrials and consumer discretionary.
Um, and then as I mentioned, there's some corporate tax provisions in the reconciliation bill.
They're pretty meaningful, but they're meaningful from a time shifting incentive perspective.
They're just providing you the present value incentive to invest today rather than in the future.
So you can defer some taxes, but, uh, they can, they might boost cashflow by three or 4%.
And no smoking guns here for people that thought they would start to see already some of the tariff stuff showing up in either Q2 earnings, or more importantly, guidance and earnings revisions.
Part of it could be, I think you have to remember, while the economy is 70% driven by the consumer, The S&P 500 particularly is really a production index, 60% or so, maybe even a little more of market cap and earnings in the S&P are the production side of the economy rather than consumption.
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