Key Themes from U.S. Q4 Earnings Season

Executive summary:

U.S. Q4 earnings growth is broadening out beyond the tech sector
Uncertainty remains around U.S. trade policy
The Bank of England announced a 25-bps rate cut

On the latest edition of Market Week in Review, Senior Director and Chief Investment Strategist for North America, Paul Eitelman, discussed the main themes from U.S. fourth-quarter earnings season. He also provided an update on U.S. trade policy and recent announcements from global central banks.

Is U.S. earnings growth broadening out to other sectors?

Eitelman began with a look at how U.S. fourth-quarter earnings season is shaping up now that over half of S&P 500 companies have reported results. “So far, it’s been a season of strength, with a continued robust performance from the corporate sector,” he said. Of arguably even more importance is the fact that earnings growth is starting to broaden out beyond mega cap technology companies, Eitelman added. As evidence, he noted that both the Russell 2000 Index of small cap stocks and the so-called S&P 493—which excludes the Magnificent Seven group of tech stocks—have transitioned back to positive earnings growth for the fourth quarter.

Eitelman said that if earnings growth remains resilient and continues to expand to other sectors, this could support a broadening out in equity-market performance over the course of 2025. “This will be a key watchpoint for investors to pay attention to next quarter,” he remarked.

U.S. implements tariffs on China, pauses plan to tax Canadian and Mexican imports

Shifting to U.S. trade policy, Eitelman noted that the first few days of February were marked by uncertainty in markets due to the Trump administration’s proposal to implement tariffs on the country’s three largest trading partners—Canada, Mexico, and China.

Markets traded higher on Feb. 3 after U.S. President Donald Trump announced a 30-day delay in imposing tariffs on Canada and Mexico in order for negotiations to continue, Eitelman said. The U.S. did proceed with imposing a 10% tariff on Chinese imports the next day, he added. However, Eitelman said he expects these tariffs to only have very modest effects on U.S. growth and inflation moving forward.

He noted that a level of uncertainty remains around U.S. trade policy, as it’s unclear if the U.S. will implement tariffs on Mexico and Canada after the 30-day pause ends. In addition, it’s also possible that the new U.S. administration could pursue tariffs against the European Union, Eitelman said.

“Ultimately, I expect this theme of trade-policy uncertainty to continue to linger moving forward, both for investors and for the U.S. corporate sector,” he remarked.

Rate-cutting cycle continues for key central banks

Eitelman finished with a review of the latest rate decisions from global central banks. He noted that on Feb. 6, the Bank of England (BoE) became the latest developed-market central bank to announce a 25-basis-point (bps) rate cut, joining the European Central Bank and the Bank of Canada, which each slashed rates by a quarter-percentage-point last week.

“The BoE’s decision is reflective of the broader rate-cutting trend that is still continuing in most developed markets,” Eitelman stated, noting that some central banks are moving at different paces. This includes the U.S. Federal Reserve (Fed), he said, which opted to skip a rate cut at its January meeting after lowering rates by a cumulative 100 bps in the final months of 2024.

Eitelman explained that the Fed is easing at a slower rate due to the strength of the U.S. business cycle, while the ECB is lowering rates somewhat faster due to a weaker economy. The Bank of England, meanwhile, is confronting both an uptick in inflation and a weakening jobs market, he said.

Because of this, Eitelman expects the BoE to continue cutting rates—potentially even a little more than current market pricing suggests. “On the back of this view, we do see some good value in UK government bonds,” he concluded.

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