The second quarter of 2025 has delivered a robust US earnings season so far, providing a counterweight to softening macroeconomic data. While corporate results remain resilient – particularly in large-cap technology – broader economic indicators suggest the US economy is operating at “stall speed.” Investors face a market driven by concentrated earnings strength amid slowing domestic demand, rising trade frictions and an increasingly watchful Federal Reserve.

Earnings Season Update

As of 4 August 2025, roughly 70% of the S&P 500’s market capitalisation has reported results. Aggregate EPS growth is tracking at 9.8% year-on-year, an improvement from the 5.9% forecast at the start of reporting season and reflecting a series of positive earnings surprises.

75% of companies have exceeded consensus earnings expectations, and EPS is on pace to finish near 9.8% to 10% growth if historical post-reporting revisions follow their usual pattern.

Technology as the Primary Driver

The earnings season continues to be dominated by the TECH+ cohort, which includes the six largest technology and AI-focused companies: Apple, Amazon, Microsoft, Meta, Google and Nvidia. This group is generating EPS growth of 27.5%, far outpacing the 4.7% growth for the rest of the S&P 500.

Meta (EPS +38.4% YoY) delivered a substantial earnings beat, with revenue surprising by +6.1%. The company continues to benefit from strong digital advertising and higher engagement on AI-driven products and Reels.
Amazon (EPS +33.3% YoY) exceeded estimates on both revenue (+3.5% surprise) and earnings (+26.6%). Growth was powered by AWS cloud revenues up 17.5% YoY, and capital expenditure came in at $32.2B, well ahead of the $26B Street forecast, highlighting continued investment in AI infrastructure.
Microsoft (EPS +23.7% YoY) outperformed with an 8.3% earnings surprise, driven by robust performance in Azure and AI cloud offerings.
Apple (EPS +12.1% YoY) posted a 5% revenue surprise, with iPhone sales up 13.5% YoY, suggesting some pull-forward of demand and strong product cycle execution.
Google (EPS +22.2% YoY) beat expectations primarily through continued strength in advertising and cloud.
Nvidia (EPS expected +46.4% YoY) has yet to report, but its contribution is anticipated to be material.

The market has rewarded earnings beats with positive short-term price action, while misses have been met with sharper drawdowns than historical averages – an indicator of selective investor appetite in a late-cycle environment.

Overall, the S&P 500 is on track for its strongest quarterly earnings growth since early 2024, with leadership highly concentrated in large-cap technology and financials. However, earnings breadth remains narrow, and cyclically sensitive sectors continue to lag, reflecting the deceleration visible in macroeconomic data.

The US remains the clear leader for global earnings growth, with S&P 500 EPS projected to rise into the low teens, supported by structural, sectoral and macroeconomic advantages. This strength is heavily underpinned by the dominance of US technology and innovation leaders, which are benefitting from secular trends in artificial intelligence, cloud computing and digital infrastructure. Financials and select healthcare and industrial firms are also expected to contribute meaningfully as margins stabilise and capital investment accelerates.

Macro and Strategy Context

While earnings are providing short-term market support, the US economy shows clear signs of deceleration. Real GDP expanded 1.2% annualised in the first half of 2025, a pace historically consistent with heightened recession risk. Domestic demand has slowed, and labour market data is softening:

July payrolls added just 73,000 jobs, well below estimates.
Unemployment edged up to 4.25%, the highest since 2021.
Labour force participation has drifted lower, masking underlying slack in the job market.

From a policy perspective, the Federal Reserve remains data-dependent. Markets anticipate that a September cut is likely should labour market softness persist. The upcoming Jackson Hole Symposium on 22 August will provide critical guidance on the Fed’s assessment of “labour markets in transition.”

Trade Policy as a Risk Factor

Trade policy remains an additional source of uncertainty. The White House has negotiated a series of trade “deals” that appear to raise the weighted average US tariff rate from around 16% to potentially 19%, with the European Union representing the most significant swing factor. While these measures have so far avoided the most punitive outcomes, they underscore a backdrop of elevated trade frictions that could weigh on global supply chains and corporate sentiment.

Market Implications

Equity markets have so far digested the slowing macro environment with resilience, buoyed by better-than-expected corporate earnings and the concentration of profit growth in technology leaders.

Valuations remain elevated, with the S&P 500 trading near 26–27x trailing earnings, supported by expectations of policy easing later this year.
Earnings breadth is narrow, and outside the technology and financial sectors, profit growth is modest.
Forward risks include a potential escalation in trade tariffs, a continued cooling in domestic demand, and any disappointment in labour market trends that could undermine consumer confidence.

In our view, maintaining a balanced equity allocation with an emphasis on quality companies, strong balance sheets and defensive earnings streams remains prudent. Exposure to technology and innovation leaders continues to be justified but should be complemented by selective allocations to sectors with stable cash flows and reliable dividends, given the late-cycle macro environment.