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Weekly CIO Commentary

Earnings in the hot seat

Saira Malik
Head of Equities and Fixed Income & Chief Investment Officer, Nuveen
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Bottom line up top:

We think increased equity market volatility is likely over the coming months.
Cio weekly chart 1
Despite a mixed corporate earnings picture, we remain cautiously optimistic toward equity markets.

Portfolio considerations

First-quarter earnings season for S&P 500 companies was bolstered by the pulling forward of demand as consumers accelerated their purchases ahead of anticipated tariffs. Now markets are eagerly awaiting Q2 results, starting with this week’s earnings announcements from large U.S. banks. As higher tariffs and strained global trade relations begin to affect economic activity, we expect earnings growth to slow in the coming quarters — a potentially critical factor in how the U.S. equity market progresses in 2025 after recently hitting a series of new record highs.

Although companies in the financials sector are among the first to report and could set the tone for other sectors, the latest projections from FactSet indicate that communication services and information technology should deliver the strongest earnings per share (EPS) growth for Q2, while energy is poised for the weakest showing.

EPS for the S&P 500 Index as a whole is expected to grow +4.9% year over year (Figure 2). That’s a sharp deceleration from the prior quarter’s +13.3% and an obstacle to more reasonable equity valuations. Higher EPS growth is needed if the S&P 500’s elevated P/E ratio is to come down.

Currently, the index’s forward P/E ratio is 22.1x, above its 5-year average of 19.9x and 10-year average of 18.4x.

But earnings outlooks have become cautious, with 59 companies issuing negative EPS guidance to date, slightly higher than the five-year average of 57 companies at this point in the earnings season. Meanwhile, 51 companies have provided positive guidance, more than the five-year average of 42. Among sectors, information technology has the most companies (29) issuing positive EPS guidance.

These results and forecasts underscore a complex economic and market environment in which investors are weighing earnings growth against the prospect of delayed Fed rate cuts this year and the potentially inflationary fiscal policies of the Trump administration. Additionally, while the “One, Big, Beautiful Bill” may create earnings tailwinds in the form of lower corporate taxes and looser regulations, companies must also grapple with anticipated headwinds from other policy decisions, such as a higher effective tariff rate and restrictions on immigration.

How these factors play out remains to be seen, but investors will have an opportunity to assess whether Q2 earnings season can offer any catalysts for the market to move higher. On balance, we believe fundamentals still point to an earnings growth recovery for the second half of 2025. FactSet currently foresees overall EPS growth of +9.1% for the year as a whole. We think that estimate could hold, but it will require companies to continue to exhibit resilience in the face of uncertainty. Our view on equities as an asset class remains cautiously optimistic.

Cio weekly chart 2

Nuveen’s Global Investment Committee (GIC) brings together the most senior investors from across our platform of core and specialist capabilities, including all public and private markets.

Regular meetings of the GIC lead to published outlooks that offer:

Related articles

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Investment Outlook CIO commentary archive
Access previous issues of Saira Malik’s weekly CIO commentary on strategy and portfolio construction.

Endnotes 

Sources

All market and economic data from Bloomberg, FactSet and Morningstar.
This material is not intended to be a recommendation or investment advice, does not constitute a solicitation to buy, sell or hold a security or an investment strategy, and is not provided in a fiduciary capacity. The information provided does not take into account the specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made based on an investor’s objectives and circumstances and in consultation with his or her financial professionals.
The views and opinions expressed are for informational and educational purposes only as of the date of production/writing and may change without notice at any time based on numerous factors, such as market or other conditions, legal and regulatory developments, additional risks and uncertainties and may not come to pass. This material may contain “forward-looking” information that is not purely historical in nature.
Such information may include, among other things, projections, forecasts, estimates of market returns, and proposed or expected portfolio composition. Any changes to assumptions that may have been made in preparing this material could have a material impact on the information presented herein by way of example. Performance data shown represents past performance and does not predict or guarantee future results. Investing involves risk; principal loss is possible.
All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such. For term definitions and index descriptions, please access the glossary on nuveen.com. Please note, it is not possible to invest directly in an index.

Important information on risk

All investments carry a certain degree of risk and there is no assurance that an investment will provide positive performance over any period of time. Equity investing involves risk. Investments are also subject to political, currency and regulatory risks. These risks may be magnified in emerging markets. Diversification is a technique to help reduce risk. There is no guarantee that diversification will protect against a loss of income.

Nuveen, LLC provides investment services through its investment specialists.

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