#MacroFriday: S&P 500 Rebounds, Earnings Expectations Lag Behind

Over the past two weeks, neither the economic data flow nor financial markets have offered your economist much respite. The S&P 500 has managed to recover most of its earlier 2025 losses (in USD terms), yet this rebound has not been accompanied by a corresponding recovery in corporate earnings expectations. As a result, valuations for U.S. equities have rebounded quickly, perhaps too quickly.

Forward-looking earnings estimates have been revised downward for 2025. Analysts now anticipate earnings for S&P 500 companies to grow by 9% in 2025 relative to 2024, a notable downgrade from the 14% expected at the start of the year. For 2026 and 2027, analysts still expect double digit earnings growth.Interestingly, while technology stocks have been somewhat out of favor this year, they are still expected to contribute a significant portion of that growth.

Meanwhile, European equities have outperformed their U.S. counterparts in 2025, but the underlying earnings outlook remains weaker. Market consensus currently expects earnings growth of just 3.3% for the Stoxx 50 in 2025, though expectations improve to 11.2% for both 2026 and 2027. Importantly, European valuations remain significantly more modest than those in the U.S., offering a potential cushion against further downward revisions.