View from the Observation Deck

Today’s post seeks to investigate the impact of changes (real or anticipated) in U.S. policy rates on the country’s banking and financial sectors. The chart above plots the price-only returns of the S&P Banks GICS Level 2 Index, S&P Regional Banks Index, and S&P 500 Financials Index against the broader S&P 500 Index. Our observations begin on 7/9/24, the day after Federal Reserve (“Fed”) Chairman Jerome Powell’s testimony to Congress that the U.S. economy no longer appeared to be “overheated”. We chose this date because we view it as the Fed’s initial signal that interest rate reductions were likely imminent.

The Fed reduced its policy rate three times in 2024, bringing the federal funds target rate (upper bound) from 5.50% to 4.50% where it has remained since the start of the year.

As many investors likely know, these lower policy rates helped end the longest yield curve inversion in U.S. history. That said, the yield curve has yet to fully normalize. As of 6/23/25, the spread between the 2-year and 10-year Treasury notes stood at 48 basis points (bps), well below the 25-year average of 110 bps. We believe financials - specifically those institutions that earn a spread from lending deposits - may benefit as this spread widens to historical norms.

Earnings estimates for the S&P 500 Financials Index underwent substantial upward adjustments in the wake of Powell’s Congressional testimony, but current-year estimates have faded in recent months.

On 6/20/25, analysts estimated that the S&P 500 Financials Index would see year-over-year (y-o-y) earnings growth of just 3.34% in 2025, down from 7.20% on 12/27/24. As we see it, stalling earnings growth rate estimates reflect the reduced number of interest rate cuts expected in 2025. On 6/20/25, the federal funds rate futures market revealed that investors expected just two rate cuts through December 2025, down from three cuts on 3/31/25.

The total returns for the four indices in today’s chart from 7/9/24 – 6/20/25 were as follows:

S&P 500 Banks GICS L2 Index: 24.84%
S&P 500 Financials Index: 22.12%
S&P Regional Banks Index: 19.41%
S&P 500 Index: 8.37%

Takeaway: As today’s chart reveals, U.S. banking and financial institutions continued to outperform the broader S&P 500 Index in the wake of Powell’s testimony last year. That said, current-year earnings data hints at potential headwinds. In June, analysts revealed that earnings for financial firms are estimated to grow more slowly in 2025 than what was reported in December 2024. Even so, investors appear to be discounting for a more accommodative Fed and continued normalization of the Treasury yield curve. In our view, historical inflation data lends support to this view. While the Fed would like to see inflation below 2.0%, the metric averaged 2.6% over the 25-year period ended May 2025. Furthermore, while current-year earnings estimates for Financials have come down, estimates for 2026 earnings per share are higher today than at the start of the year. As always, risks in the form of economic deterioration, protracted international wars, and the potential for restrictive lending standards remain. We will report back as developments warrant.

The S&P 500 Index is an unmanaged index of 500 companies used to measure large-cap U.S. stock market performance. The S&P 500 Financials Index is a capitalization-weighted index of companies in the S&P 500 Index that are classified as members of the GICS financials sector. The S&P 500 Banks Index is a capitalization-weighted index. The S&P Banks Select Industry Index comprises stocks in the S&P Total Market Index that are classified in the GICS Asset Management & Custody Banks, Diversified Banks, Regional Banks, Diversified Financial Services and Commercial & Residential Mortgage Finance sub-industries. The S&P Regional Banks Select Industry Index is comprised of stocks in the S&P Total Market Index that are classified in the GICS regional banks sub-industry.

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View from the Observation Deck

Today’s blog post offers a visual representation of trends in money market fund assets over time. As the chart reveals, investors tend to utilize money market funds during times of turmoil such as the financial crisis in 2008 – 2009 and the COVID-19 pandemic of 2020. Recently, however, investors have been piling cash into money market accounts (see chart) despite compelling returns in the U.S. equity markets and declining interest rates. A note about the chart: we use the federal funds target rate (upper bound) as a proxy for short-term interest rates, such as those offered by taxable money market funds and other savings vehicles. We believe this proxy may offer insight into the potential effect of short-term rates on investor behavior.

• Net assets invested in U.S. money market funds totaled $7.01 trillion on 6/11/25 (most recent weekly data), an increase of 14.54% from $6.12 trillion on 6/12/24. The current tally rests just below the record of $7.03 trillion set on 4/2/25. For comparison, the S&P 500 Index increased by 12.56% on a total return basis over the same period (6/12/24 – 6/11/25).
  
  
• Since September 2024, the Federal Reserve (“Fed”) has announced three reductions to its federal funds target rate, bringing the rate from 5.50% to 4.50% (upper bound) where it currently sits. Money market investors appear unfazed by these reductions, adding $703.0 billion to money market funds from 9/18/24 (date the first cut was announced) to 6/11/25.
  
  
• Remarkably, rising tensions from tariffs and geopolitical events have not led to a surge in money market fund asset growth. Net money market fund assets increased by $158.7 billion year-to-date (YTD) (1/1/25 – 6/11/25), compared to an increase of $155.6 billion over the period last year (1/3/24 – 6/12/24).
  
  
• The market implied probability that the Fed will reduce the target rate at its meeting later this week stood at just 3.1% on 6/13/25, down from 63.1% on 3/31/25.

Takeaway: Since the Fed’s initial rate hike on 3/16/22, total net assets invested in U.S. money market funds increased from $4.56 trillion to $7.01 trillion (53.7%), notching multiple records along the way. Total assets increased over the period despite declining interest rates. Net assets invested in money market funds increased by $703.0 billion over the period spanning the Fed’s first interest rate cut on 9/18/24 through 6/11/25. Notably, the pace of money market fund asset growth has not increased substantially year-over-year, despite an increasingly volatile equity market and souring geopolitics. The long-term return profiles of these respective investments may offer insight into this behavior. While money market funds offer principal stability and income, their total return has lagged the S&P 500 Index, which surged by 57.82% (total return) over the trailing 24-months ended 12/31/24, and is up 2.24% YTD thru 6/13/25. It remains our view that an allocation to equities will generate a higher return on capital than cash over time.

This chart is for illustrative purposes only and not indicative of any actual investment.

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View from the Observation Deck

Many investors are likely aware of the indispensable role dividends have played in S&P 500 total returns over time. As we wrote in Tuesday’s blog (Click Here to View), dividends accounted for 37.02% of the total return of the S&P 500 Index (“Index”) between May 31, 1928 and May 30, 2025. Even so, we suspect that investors are even more aware of inflation’s impact on their investments over time. With that in mind, today’s post explores the extent to which dividend payments have outpaced inflation. The time frame we chose was the 46-year period from 1979 to 2024.

As revealed in the chart above, the dividends per share (DPS) paid by the companies that comprise the Index increased at a staggering pace when compared to inflation (measured by the CPI-U).

Over the period covered by today’s data, the Index’s DPS increased at a compound annual growth rate (CAGR) of 5.77%. For comparison, the CPI-U increased at a CAGR of 3.13% over the same time frame.

Dividends paid by S&P 500 Index companies reached a record $629.6 billion in 2024, an increase of 7.0% year-over-year from $588.2 billion in 2023. Furthermore, the dividend payout ratio for the Index stood at 35.3% on 5/30/25, well below its 30-year average of 42.0% (not in chart).

Despite record high dividend payments, the companies that comprise the Index are paying out a smaller portion of total earnings in the form of dividends than average. From our perspective, companies are more likely to increase dividend distributions if earnings are growing. As of 6/6/25, Bloomberg forecast the Index would see earnings growth of 7.2% and 13.5% in 2025 and 2026, respectively.

Takeaway: From 1979 to 2024, the dividends per share paid by the companies that comprise the S&P 500 Index increased at a CAGR of 5.77%. For comparison, the Consumer Price Index for All Urban Consumers increased at a CAGR of 3.13% over the period. While the relationship between dividends and equity returns is generally well understood, we hope today’s post reveals the critical role dividends have also played in hedging against inflation.

This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions and other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Index is an unmanaged index of 500 companies used to measure large-cap U.S. stock market performance. Dividends per share is calculated by adding the gross dividend amounts for all dividend types that have gone ‘ex’ over the past 12 months based on dividend frequency. This total includes taxes, related dividend fees or tax related credits. The Consumer Price Index for All Urban Consumers reflects the cost of essential items such as food, apparel, housing, fuel, transportation, medical services, pharmaceuticals, and other products and services purchased for everyday living by nearly all urban residents, excluding those in rural areas, the military, and those in institutions, such as mental hospitals and prisons.

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View from the Observation Deck

For many investors, dividend payments have become an ordinary and expected benefit of equity ownership. Notably, 407 of the 503 constituents in the S&P 500 Index (“Index”) reported distributing a cash dividend to their equity owners as of 5/30/25. That said, the impact of dividends on the investment landscape has been nothing short of extraordinary. According to data from Bloomberg, dividends accounted for 37.02% of the total return of the Index between May 31, 1928, and May 30, 2025.

• Dividend payments from the Index’s constituents totaled a record $74.61 per share in 2024, up from $70.91 (previous record high) in 2023.
  
  
• As of 6/9/25, dividend payments are estimated to increase to $81.55 and $86.42 per share in 2025 and 2026, respectively.
  
  
• The Index’s dividend payout ratio stood at 35.29% on 6/9/25. A dividend payout ratio between 30% and 60% is typically a good sign that a dividend distribution is sustainable, according to Nasdaq.
  
  
• Many investors view changes in dividend distributions as an indication of financial strength or weakness in the underlying company. Just four dividend cuts and one suspension were announced year-to-date through the end of May. For comparison, nine dividends were cut and zero were suspended over the same period last year.

Takeaway: Dividend distributions continue to be one of the most efficient ways for companies to return capital to shareholders. They also contribute meaningfully to overall returns. In the 97-year period between May 31, 1928, and May 30, 2025, more than 37% of the total return of the Index came from dividends. Investors often view consistent or increasing dividend payments as a sign of financial strength. Tellingly, analysts estimate the Index’s dividends will increase to a record $81.55 per share in 2025 and $86.42 per share in 2026. Finally, dividends can be a significant potential inflation hedge. Inflation, as measured by the consumer price index, increased by 35.60% over the 10-year period ended April 2025. Total dividends paid by the Index’s constituents increased by a staggering 84.03% over the same period.

This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions and other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Index is a capitalization-weighted index comprised of 500 companies used to measure large-cap U.S. stock market performance, while the 11 major S&P 500 Sector Indices are capitalization-weighted and comprised of S&P 500 constituents representing a specific sector. 

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View from the Observation Deck

We like to update this table from time to time to monitor the impact of interest rate policy on the longer-term fixed income market, as represented by the U.S. 10-Year Treasury Note (T-note). At a minimum, bond investors typically seek to generate a yield that outpaces the rate of inflation over time, allowing them to maintain a base level of purchasing power. A bond’s real yield - calculated by subtracting the most recent inflation rate, such as the Consumer Price Index (CPI), from the bond's current yield - is a simple way to measure this.

The yield on the benchmark 10-year T-note stood at 4.46% (4.5% rounded) on 6/3/25, well above the 2.3% trailing 12-month rate on the CPI in April 2025. That equates to a real rate of 2.2%.

For comparative purposes, over the 30-year period ended 4/30/25, the average monthly yield on the 10-year T-note was 3.69% (3.7% rounded), while the CPI averaged 2.5%, according to data from Bloomberg. Those figures translate into an average real yield of 1.2%, below the current real rate offered by the T-note. For continued comparison, the S&P 500 Index experienced an average annual total return of 10.39% for the 30-year period ended 6/3/25.

As of 5/30/25, the federal funds target rate (upper bound) stood at 4.50%, down from its most recent high of 5.50% on 8/30/24.

As the table shows, the CPI stood at 2.3% at the end of April 2025, significantly lower than its most recent peak of 9.1% in June 2022 and below its 30-year average of 2.5% (addressed above). The Federal Reserve (“Fed”) implemented several policy rate reductions in the years since our last post. Disinflation and a strong labor market are likely catalysts for these decisions. That said, tariffs and their ensuing economic disruption led the Fed to pause interest rate cuts, holding rates unchanged over its last three consecutive meetings.

Takeaway: The 10-year T-note currently offers the highest observed real yield of any period covered in today’s table. Notably, despite disinflation and declining interest rates, the T-note’s yield remained relatively stable in recent months. As we see it, elevated long-term yields may reflect unease among investors as they discount future cash flows across their fixed income portfolios. That said, the bond market appears to have priced for lower interest rates in the near-term. The yield on the 2-year T-note (not in today’s table) declined by 86 basis points (bps) compared to the 10-Year T-note’s increase of seven bps over the trailing 12-months ended 6/3/25. Will real yields remain elevated throughout 2025, or will they decline amidst strong economic data and productive tariff negotiations? Stay tuned!

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View from the Observation Deck

While companies have a number of ways to return capital to shareholders, cash dividends and stock buybacks have become increasingly popular in recent years. Aside from just a few outliers, dividend distributions steadily increased over today’s set of observations. In contrast, share buybacks continue to account for a larger share of total capital disbursements despite greater variance.

• Combined, stock dividends and share buybacks totaled a record $1.57 trillion (preliminary data) in 2024, up from $1.38 trillion in 2023.
  
  
• Dividend distributions increased to a record $167.6 billion in Q4’24, up from $154.1 billion in Q4’23. In total, the companies that comprise the S&P 500 Index (“Index”) distributed a record $629.6 billion in dividend payments in 2024, up from $588.2 billion in 2023.
  
  
• Stock buybacks increased to $243.2 billion in Q4’24 (preliminary data), up from $219.1 billion in Q4’23. Buybacks totaled a record $942.5 billion in 2024, up from $795.2 billion in 2023.
  
  
• In Q4’24, the S&P 500 Index sectors that were most aggressive in repurchasing their stock were as follows (% of all stocks repurchased): Information Technology (26.2%); Financials (17.3%); and Communication Services (12.0%), according to data from S&P Dow Jones Indices.

Takeaway: Investors often view increases in dividend payouts and stock buybacks as signs of financial strength. Total dividend distributions and share repurchases rose to record levels in 2024, signaling improved financial performance among S&P 500 Index constituents. Notably, the top 20 companies accounted for just 49.0% of total buybacks in Q4’24, down from 53.2% in Q3’24. While the figure remains higher than the historical average (47.7%), the metric’s decline may reflect improving financial conditions across a larger share of the Index’s holdings. That said, today’s data is lagged and occurred prior to recent disruption caused by tariffs. The Index’s earnings outlook has weakened in recent months, which could threaten dividend growth and buyback announcements over the near-term. We will update this post with new information as it becomes available.

This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions and other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Index is an unmanaged index of 500 companies used to measure large-cap U.S. stock market performance. The 11 major sector indices are capitalization-weighted and comprised of S&P 500 constituents representing a specific sector.

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View from the Observation Deck
 
Today’s table reveals the trend in global government bond yields over the trailing 12-months ended 5/28/25. As many investors are aware, central banks across the globe began reducing policy rates in 2024 amidst mounting evidence of disinflation. As today’s data shows, this monetary easing resulted in a widespread decline in global government bond yields. That said, concerns that inflation may not be fully contained (among other factors) have increased. In the U.S., the Federal Reserve cited inflation and economic uncertainty as catalysts for leaving policy rates unchanged for the third consecutive meeting in May.
 
Headline inflation remains muted but is forecast to increase in all but three of the countries observed in today’s table by year’s end. 
 
While not presented in the table, inflation remains below central bank targets in all but four of the countries represented above (Germany, Japan, the U.K., and the U.S. are the exceptions). That said, analysts anticipate that inflation will increase across the globe in 2025. Data from Bloomberg reveals that Italy, Japan, and the U.K. are the only countries from today’s table that will not see inflation increase by the end of this year.
 
Since our last post, real yields (yield minus inflation) offered by 10-year government bonds increased across most of the globe.
 
This may seem counterintuitive at first. As shown in the column marked “12-Month Change (Basis Points)”, yields on most of the 10-year government bonds in today’s table declined over the past 12-months. That said, falling yields were largely offset by disinflation. As of 5/28/25, nine of the ten countries represented in today’s table had a positive real yield on their 10-year note (up from eight the last time we posted on this topic). The nine countries and their respective real yields are as follows: France (2.52%); U.S. (2.18%); Australia (1.93%); China (1.80%); Italy (1.63%); Canada (1.54%); U.K. (1.23%); Germany (0.45%); and Switzerland (0.22%).

Takeaway: As we see it, the world’s central banks may find themselves with limited tools to fight recession should global output slow dramatically. As revealed by data from Bloomberg, analysts expect inflation will increase in many of the largest economies across the globe this year. Notably, inflation surged in both Italy and the U.K. in the months since our last post on this topic. That said, 2-year yields declined among all but one country (Japan), indicating that short-term bond investors were discounting for lower interest rates over the 12-month period covered by today’s data. We expect central bank policy rates will remain elevated in countries where inflation has reaccelerated but recognize that these are multifaceted decisions. Should these economies face substantial stagnation, central banks could lower short term rates despite the risks posed by price increases. We will continue to monitor the situation and report back as new developments occur.
 
This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions and other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Index is an unmanaged index of 500 companies used to measure large-cap U.S. stock market performance, while the S&P sector and subsector indices are capitalization-weighted and comprised of S&P 500 constituents representing a specific sector or industry. 

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View from the Observation Deck

Today’s blog post is intended to provide insight into the movement of bond prices amidst the current investment climate and prevailing interest rate policy. Aside from the most recent data, other dates in the chart are from prior posts we’ve written on this topic. Click here to view our last post in this series.

Seven of the eight bond indices we track suffered price declines since our last post.

Echoing our last post, fixed income securities suffered losses amidst increasingly disruptive tariff policies and economic deterioration. Rate cut expectations reveal the difficulty investors have found in pricing in this data. As of 5/22/25, federal funds rate futures indicated that investors expect just two interest rate cuts through the end of 2025, down from greater than four cuts just weeks prior on 4/30/25.

Prices are increasing at a slower rate.

The pace of U.S. price increases continued to stall in April. Inflation, as measured by the trailing 12-month rate of change in the Consumer Price Index, stood at 2.3% in April 2025, its lowest level since February 2021 when it stood at 1.7%. While this could be viewed as a catalyst to further interest rate cuts, there are other factors at play. In commentary after its most recent meeting, the Federal Reserve (“Fed”) noted that inflation remains above the Fed’s target rate of 2.0% and indicated that a resilient labor market contributed to the Fed’s decision to maintain current interest rates.

Takeaway: Valuations decreased in all but one of the eight fixed income indices in today’s chart between 3/14/25 and 5/22/25. We believe declining bond valuations continue to reflect reduced certainty in the current investment climate. As told by futures market data, the likelihood of multiple, significant reductions to the federal funds target rate diminished significantly in May. U.S. trade policy continues to be a wildcard, causing investors much difficulty in planning for the near-term. Given these factors, perhaps it is unsurprising that Moody’s reduced the U.S. credit rating from Aaa to Aa1 on 5/16/25, marking the first time the three largest credit rating agencies simultaneously rated U.S. debt below the top tier. That said, we see little reason for this to alarm investors beyond the short-term. Keep in mind that U.S. debt continued to be seen as one of the most liquid and safest assets in the world despite downgrades by S&P back in 2011 and Fitch in 2023. We will continue to update this post throughout the year.

This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions or other expenses incurred when investing. Investors cannot invest directly in an index. The Morningstar LSTA U.S. Leveraged Loan 100 Index is a market value-weighted index designed to measure the performance of the largest segment of the U.S. syndicated leveraged loan market. The ICE BofA U.S. High Yield Constrained Index tracks the performance of U.S. dollar denominated below investment grade corporate debt publicly issued in the U.S. domestic market. The ICE BofA 22+ Year U.S. Municipal Securities Index tracks the performance of U.S. dollar denominated investment grade tax-exempt debt publicly issued by U.S. states and territories, and their political subdivisions with a remaining term to maturity greater than or equal to 22 years. The ICE BofA Fixed Rate Preferred Securities Index tracks the performance of investment grade fixed rate U.S. dollar denominated preferred securities issued in the U.S. domestic market. The ICE BofA 7-10 Year U.S. Treasury Index tracks the performance of U.S. dollar denominated sovereign debt publicly issued by the U.S. government with a remaining term to maturity between 7 to 10 years. The ICE BofA U.S. Mortgage Backed Securities Index tracks the performance of U.S. dollar denominated fixed rate and hybrid residential mortgage pass-through securities publicly issued by U.S. agencies in the U.S. domestic market. The ICE BofA U.S. Corporate Index tracks the performance of U.S. dollar denominated investment grade corporate debt publicly issued in the U.S. domestic market. The ICE BofA Global Corporate Index tracks the performance of investment grade corporate debt publicly issued in the major domestic and Eurobond markets.

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View from the Observation Deck

As the Q1’25 earnings season concludes, we thought it would be timely to provide an update regarding 2025 and 2026 earnings and revenue growth rate estimates for the sectors that comprise the S&P 500 Index (“Index”). The Index closed at 5,940.46 on 5/20/25, down 2.97% (total return) from its all-time high of 6,144.15 (2/19/25), but up a staggering 19.41% (total return) from its most recent low of 4,982.77 (4/8/25). For comparison, from 1928-2024 (97 years) the Index posted an average annual total return of 9.71%. The table above presents the 2025 and 2026 calendar year earnings and revenue growth rate estimates for the broader S&P 500 Index and each of its 11 sectors.

Despite a decline since our last post, earnings growth estimates remain favorable in 2025.

Earnings for the companies that comprise the Index are estimated to increase by 7.4% year-over-year (y-o-y) in 2025, down from 12.4% in our last post on this topic in January (click here). Three sectors are estimated to see earnings decline y-o-y in 2025: Energy (-11.8%); Consumer Discretionary (-0.9%); and Consumer Staples (-0.7%). In 2026, however, earnings are estimated to increase for each of the Index’s 11 sectors, with Energy leading the way amidst favorable comparisons to 2025’s earnings.

Revenue growth rate estimates remain favorable as well.

As of 5/16/25, the Index’s 2025 estimated y-o-y revenue growth rate stood at 4.3%, down from 5.6% on 1/24/25. Ten of the eleven sectors that comprise the S&P 500 Index reflect positive y-o-y revenue growth rate estimates for 2025, with four of them estimated to surpass 5.0%, down from seven in our last post. Information Technology commands the highest estimated revenue growth rates at 10.9% and 10.1% in 2025 and 2026, respectively.

Takeaway: Equity markets are forward-looking discounting mechanisms, meaning the price of an efficient market should reflect the sum-effect of present and future (expected) events. In our view, this years’ volatility is an indication of the difficulty market participants have had in discounting potential tariffs and weakening economic data against corporate earnings and revenues. While they are lower than where they stood in January, the Index’s current-year earnings and revenue estimates continue to reflect strength. Notably, next year’s estimates are even higher. As always, estimates are subject to change as new information is disclosed within the market. Time will ultimately reveal the accuracy of these estimates, but we maintain that higher revenues could be the best catalyst for earnings growth, which in turn, may continue to drive equity prices higher.

This chart is for illustrative purposes only and not indicative of any actual investment. There can be no assurance that any of the projections cited will occur. The illustration excludes the effects of taxes and brokerage commissions or other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Index is an unmanaged index of 500 companies used to measure large-cap U.S. stock market performance. The respective S&P 500 Sector Indices are capitalization-weighted and comprised of S&P 500 constituents representing a specific sector.

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View from the Observation Deck

We update this post on an ongoing basis to provide investors with insight regarding the earnings climate of the S&P 500 Index (“Index”). While quarterly earnings estimates are a useful indicator of a company’s financial performance, they are not guarantees. Equity analysts are continually adjusting these estimates as new information is obtained. As of 5/9/25, 451 of the 503 stocks that comprise the Index (89.7%) had reported Q1’25 earnings.

FactSet reported that the Q1’25 blended, year-over-year (y-o-y) earnings growth rate for the Index stood at 13.6% as of 5/16/25, marking the seventh consecutive quarter of y-o-y earnings growth for the Index.

Should this hold, it will mark the second consecutive quarter of double-digit earnings growth for the Index.

The percentage of Index companies that beat earnings expectations in Q1’25 (76.7% as of 5/9/25) sits just 0.3 percentage points below the 4-year average of 77.0%.

Keep in mind, the 4-year average in today’s chart reflects favorable comparisons to COVID-era earnings in 2020 and 2021. We expect the average will decline as those results are removed from our dataset.

The three sectors with the highest Q1’25 y-o-y earnings growth rates and their percentages were as follows (as of 5/16/25): Health Care (42.9%); Communication Services (29.2%); and Information Technology (17.5%). For comparison, Materials, Consumer Staples, and Energy suffered y-o-y earnings growth rates of -2.6%, -5.9%, and -12.7%, respectively.

As of 5/9/25, the sectors with the highest Q1’25 earnings beat rates and their percentages were as follows: Health Care (90.9%); Communication Services (90.0%) and Information Technology (86.5%), according to S&P Dow Jones Indices. Real Estate had the lowest beat rate at 60.0% and Consumer Discretionary had the highest earnings miss rate (31.7%).

Takeaway: As revealed in today’s chart, the earnings beat rate for the companies that comprise the S&P 500 Index was below average in most of the time frames presented (including the most recent quarter). That said the average earnings beat rate in today’s chart includes unusually large observations in 2021 and early 2022 when companies were recovering from COVID lockdowns. A longer view offers a secondary perspective. S&P 500 Index companies beat quarterly earnings estimates 74.6% of the time over the ten-year period ended Q1’25. Just two of our last eight quarterly observations lie below this average. While down slightly, analyst estimates for 2025 and 2026 calendar year earnings continue to reflect strength. On 5/16/25, FactSet reported that the Index’s earnings per share are estimated to total a record 265.02 and 300.15 in 2025 and 2026, down from 271.28 and 308.88, respectively, in our last post on this topic. As always, these estimates are subject to change as new information is made available. We will continue to report on this topic as relevant data arises.

This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions and other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Index is an unmanaged index of 500 companies used to measure large-cap U.S. stock market performance, while the S&P sector and subsector indices are capitalization-weighted and comprised of S&P 500 constituents representing a specific sector or industry.

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