US Q2 Earnings Season Preview: what to expect and watch for?

Summary

The much-anticipated Q2 earnings season kicks off in early July, with expectations notably dialed down. Macro headwinds, an unclear Fed path, and renewed tariff tensions have tempered the outlook. Still, key themes—AI momentum, a weaker USD, and resilient tech leadership—may keep sentiment buoyant. Sector divergence remains, but strong forward guidance could be enough to extend the rally.

Review of Q1 2025 Earnings: Second Straight Quarter of Double-Digit EPS Growth

Q1 earnings delivered another strong performance, with S&P 500 earnings rising 12.9% YoY—the second consecutive quarter of double-digit growth. 78% of companies beat EPS estimates, surpassing the five-year average of 77%.

Tech and Communication Services led the gains, with six of the “Magnificent 7” posting earnings growth of 25% or more—Nvidia and Meta stood out. Discretionary sectors lagged but avoided worst-case outcomes. Net margins held steady at 11.8%, reflecting resilient corporate pricing power despite ongoing cost pressures.

Q2 Earnings Preview: What to Expect and Watch

Key Expectations

Expectations for Q2 have been significantly lowered. Markets now forecast just 5.0% YoY EPS growth—down from 9.4% at the start of the quarter—amid elevated broad uncertainty following Trump’s “Liberation Day” tariffs and a murky Fed outlook given the risk of inflation. Still, it would mark the eighth consecutive quarter of earnings growth. Communication Services and Tech are once again expected to do the heavy lifting.

Key Watch Points: Tariffs, USD Weakness, AI Resurgence

The macro backdrop remains the key swing factor for Q2.

• Tariffs impact

First, while Trump’s tariff announcement initially jolted markets, the immediate threat has diminished. A string of negotiated carve-outs and a 90-day implementation pause have turned a disruptive headline into a more manageable risk. The temporary relief gives companies breathing room before the actual impact flows into financials, helping stabilize sentiment in trade-sensitive sectors like Industrials and Consumer Discretionary.

• Weakening dollar

The US dollar has weakened meaningfully since April. The DXY is down over 7%—even more so against major currencies like the euro and yen. This FX shift is a tailwind for globally exposed sectors such as Tech and Materials, where Q2 translation gains could surprise to the upside.

• AI hype is back

After a brief cooldown, AI momentum has returned—semiconductors led another breakout this quarter. Nvidia and AMD are poised for strong YoY earnings growth, while cloud and software giants like Microsoft and Amazon face margin pressure but remain investor favorites. Despite slowing top-line growth, tech valuations remain elevated—its forward P/E stands at 29.2, well above historical norms.

Not all sectors will shine. Energy is forecast to post a -4.4% YoY revenue decline, driven by lower oil prices and inventory overhang. Consumer Staples and Discretionary are also expected to trail on revenue growth.

Overall, Q2 looks mixed. But with the bar set low, and macro risks currently contained, a stable earnings season with solid guidance could keep the market’s upward momentum intact.

S&P 500 and Nasdaq Performance Review

Both indexes have staged a sharp recovery from their April lows.

As of early July:

– The S&P 500 is up 6.7% YTD, with a gain of more than 25% from its April bottom.
– The Nasdaq is up 6.8% YTD, and 11.5% over the past 12 months.

FactSet’s bottom-up target places the S&P 500 at 6,694—around 7.5% above current levels. Health Care, Energy, and Real Estate are expected to offer the highest upside, while Financials and Industrials continue to lag.

Still, the August tariff deadlines loom. If they trigger another wave of inflation concerns, they could test investor confidence and destabilize an already fragile global outlook.

S&P 500 Technical Outlook

The S&P 500 remains in a strong uptrend, trading above all major moving averages. Price is consolidating near the upper boundary of its rising channel, supported by the 20-day SMA and the February peak (~6,152). RSI at 70.8 signals overbought territory that a short-term breather may be near though momentum remains strong. KDJ also shows a bullish crossover in extended levels.

Immediate resistance stands at 6,368, with upside potential toward 6,500. Key support lies at 6,152 and 6,055. The broader trend stays bullish unless the index breaks below 5,918.

Conclusion

Q2 earnings aren’t expected to impress—but that’s already priced in. With expectations reset and macro sentiment improving—driven by a softer USD, easing tariff anxiety, and renewed AI optimism—equities still have room to run. Strong forward guidance and sector rotation will be critical to keeping this rally alive. Risks remain, but so does momentum.

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