3 Trends To Watch As Earnings Season Kicks Off

Spencer Platt/Getty ImagesEarnings season begins this week, with major US banks starting to report on Wednesday.Investors are focused on mega-cap tech earnings and the potential impacts of a strong US dollar.Goldman Sachs highlighted three trends to watch for in the upcoming earnings season.Earnings season kicks off this week, with 6% of the S&P 500 set to report fourth-quarter results.The biggest companies reporting earnings this week are the US large cap banks, including JPMorgan, Citi, and Wells Fargo on Wednesday, followed by Bank of America, Goldman Sachs, and Morgan Stanley on Thursday.From there, investors will be laser focused on the week of January 27, when mega-cap tech companies including Apple, Amazon, Microsoft, and Meta Platforms will report results.By February 7, nearly 75% of the S&P 500 companies will have reported their results, giving investors a clear picture of what 2025 could look like for markets.The last big earnings report will be on February 26, when Nvidia reports.David Kostin, chief US equity strategist at Goldman Sachs, said in a note over the weekend that investors should look for three trends during the coming earnings season to better gauge what could be in store for the stock market in 2025."The outlook for corporate sales growth"The US dollar hit its highest level in more than 2 years on Monday, and such a move will put pressure on multinational companies that have to convert their foreign sales to US dollars, limiting revenue growth for about 30% of S&P 500 revenues that is from overseas."This relationship implies fewer firms will beat consensus sales forecasts this reporting season compared with the 42% frequency of positive surprises during 3Q 2024 when the USD appreciated by 2%," Kostin said."How companies are preparing for the change in administration in Washington, D.C."The potential for tax reform, tariffs, and regulation changes under the incoming Donald Trump administration means companies will communicate to investors how they plan to navigate such changes.For tariffs, expect companies to communicate that they will pass on higher prices to consumers, reshuffle supply chaings, and stockpile goods ahead of the implementation of potential tariffs, Kostin said."The sustainability of the mega-cap tech stocks' superior earnings growth."The mega-cap tech stocks have carried the S&P 500's overall earnings growth over the past two years, and by a wide margin.But the earnings growth difference between the mega-cap tech stocks and the rest of the S&P 500 is set to narrow over the next two years, according to Kostin.With earnings expectations declining across the board for mega-cap tech, that could set the stocks up for outperformance if they overdeliver."The bar for the Magnificent 7 posed by consensus estimates is much lower in 2025 relative to the last few years.