Commencing the Quarter – Q3’25

Earnings season is quickly approaching!

Every quarter, we analyze earnings communication trends for off-cycle companies reporting over the past month to identify important themes and precedence. These companies span market cap sizes and sectors.

Equity markets come into this earnings season at record highs despite lingering macro uncertainty, fueled largely by AI-driven enthusiasm, stronger-than-expected earnings growth through the first half of 2025, as well as expected Fed rate cuts and OBBBA tax benefits among oft cited tailwinds. Meanwhile, the U.S. economy has proven resilient, with AI-related capex and solid consumer spending key drivers of momentum, even as the labor market remains stagnant. Indeed, the Atlanta Fed’s GDPNow forecast currently projects 3.8% GDP growth for Q3, underscoring the strength in underlying activity.

At the same time, valuations are stretched, and unlike the typical pattern of downward estimate revisions as quarters progress, Q3 consensus estimates for the S&P 500 have increased over the last three months, suggesting a higher bar for corporate earnings.

This week’s U.S. government shutdown adds further complexity, postponing key data releases (including the September nonfarm payrolls report, originally set for today), and placing even greater emphasis on earnings as the next key catalyst for investors.

Having navigated a challenging first half, executives appear increasingly confident in their ability to adapt to a fluid trade policy environment, with recent earnings calls reflecting greater focus on growth initiatives rather than a ‘hunker down’ mentality. This shift echoes preliminary findings from our Q3 Earnings Primer® — to be released Thursday, October 9 — which shows investors now prioritizing growth over margins in the current environment, a stark shift relative to previous surveys.

Against this dynamic backdrop, executives are striking a measured but constructive tone — acknowledging uncertainty around trade policy, housing softness, and a cautious consumer, while also pointing to solid recent performance and emphasizing their ability to adapt in a fluid environment.

Key themes from our analysis:

• Macro & Outlook – Executives Highlight Continued Resilience, But Remain “Prudent” with Outlooks as Tariff Uncertainty, Housing Weakness, and Consumer Caution Persist

Tariff Impacts – Mitigation Efforts Continue, but Inflation Pressures Mount; Companies Confront Rising Costs and Brace for Greater Headwinds

• The Consumer – Bifurcation Persists: Higher-income Households Trade Down and Drive Spending While Lower-income Groups Remain Pressured; Value-Seeking Behavior Continues 
• Leaning Into Growth – Execs Highlight Efficiency and Productivity Gains, Powered in Part by AI and Tech Investments, Paving the Way for Growth Initiatives 
• Around the World – China Remains a Key Market but Faces Persistent Headwinds; Asia ex-China and LatAm Strength Offset Mixed Europe and Softer North America