“Early earnings results offer conflicting messages on the margin outlook,” Kostin writes. “Companies have so far only announced modest price increases this year, although increases have been larger among firms most exposed to tariffs.”
On the other hand, if companies themselves have to absorb a larger-than-expected share of the cost of tariffs, their profit margins will come under pressure. Revisions to analysts’ consensus estimates of corporate margins suggest that some companies may not be able to fully offset the impact of tariffs.
Some companies will be able to tap into built-up inventories to minimize the hit to their margins from tariffs. The aggregate S&P 500 inventory-to-sales ratio was largely unchanged in the first quarter of 2025, but some companies built up their inventories before tariffs were implemented
How are US tariffs impacting corporate earnings and profitability?
Analysts also expect the growth in earnings-per-share, a key measurement of companies’ profitability, to drop off this quarter. The consensus estimate among analysts sees S&P 500 companies’ earnings-per-share growth decelerating to 4% this quarter relative to the same quarter last year—down from 12% in the first quarter. On a sequential basis, consensus forecasts imply that margins contracted by 50 basis points to 11.6% from 12.1%.
“We expect the S&P 500 in aggregate will beat the low bar set for the second quarter,” Kostin writes.
The outlook for demand, meanwhile, still appears solid. Goldman Sachs Research expects nominal GDP in the US to grow at an average rate of 4.5% year-on-year in 2025. It also forecasts positive real income and spending growth for companies across all income cohorts. And sales revision breadth, which measures the difference between the number of companies with upward and downward revisions to their future sales estimates, has jumped back into positive territory after a sharp decline in April.
How are tariffs impacting capital expenditures and investment?
Tariffs and policy uncertainty don’t appear to have substantially dampened companies’ investment spending plans. Goldman Sachs economists found in a recent report that analysts raised capital spending expectations overall, when measured by weighted average.
However, those estimates for capital spending vary widely by company. Revisions to companies’ spending plans have been greatest for the sectors and stocks most exposed to the continuing development of AI, such as utilities (which provide power for data centers) and information technology. By contrast, analysts have cut capital expenditure estimates in most other sectors. Economists at Goldman Sachs Research found that capital expenditure estimates have been lowered for companies more affected by policy uncertainty, tariffs, and potential retaliatory tariffs.
What is the forecast for the S&P 500?
In total, Goldman Sachs Research forecasts that S&P 500 earnings-per-share will grow 7% in 2025 to $262. That’s slightly above the median strategist 2025 forecast for a 6% increase to $260.
The team’s estimate incorporates a modest drag on economic growth and a one-time boost to inflation from tariffs, which is likely to weigh on some sectors. But this is expected to be offset by growth in certain sectors such as information technology, communication services, and healthcare.
Kostin’s team forecasts that the S&P 500 will return 5% over the next 12 months, reaching 6500.