US 4Q earnings wrap: Strong end to 2024 but tariff moves, DeepSeek mar outlook

Published on April 1, 2025 by Susan Mathew and Rakesh Kumar

The S&P 500 has ticked down over 10% so far in 2025 (as of April 10, 2025), with investors spooked by tariff moves and policy changes by President Donald Trump’s administration. While the US 4Q 2024 earnings season was set to see the best profit growth — at nearly 20% — since the same quarter of 2021, according to FactSet, hopes for 1Q 2025 are more tempered, as China’s challenge to the US’s leadership in AI technology adds to concerns.

The consumer discretionary sector topped the leader board in US 4Q 2024, with earnings growth of nearly 26%, as Amazon.com beat earnings expectations, with profits nearly doubling from a year ago. The communications sector followed closely, marking 25.6% earnings growth, propped up by Meta Platforms and Alphabet Inc. However, shares of all three companies fell after results as investors seek better results from the billions that tech heavyweights have been spending to build AI data centres to improve their products, especially amid cheaper alternatives offered by Chinese startup DeepSeek.

DeepSeek triggered a more-than-USD1tn rout in global equities in January with its AI reasoning model outperforming many Western competitors. US chip designer Nvidia’s solid growth forecast for the current quarter, however, quelled some concerns about a continued rout, signalling that demand for Nvidia’s AI chips remained intact. Its 4Q revenue and profit beat estimates. The S&P 500 Technology Index was on track to post revenue growth of nearly 12% for the quarter — the highest among sectors.

Of the other “Magnificent Seven” stocks — Wall Street’s all-star stocks that have contributed the most to the S&P 500’s rise in recent years and make up nearly one-third of the index’s market capitalisation — Tesla was a disappointment. Its revenue and profits missed estimates, in US Q4 earnings,  but shares got a fillip from its plans to launch cheaper electric vehicles in the first half of this year.

The financial sector saw US Q4 earnings growth of more than 20% with all big banks topping estimates and Goldman Sachs more than doubling its quarterly profit y/y. A revival in dealmaking and fundraising activities, driven by expectations on future interest rate cuts by the US Federal Reserve (Fed) has bolstered the banking sector.

However, the Fed left the key rate unchanged at 4.25-4.50% target range at its FOMC policy meeting held on March 19^th. The central bank’s weaker economic growth outlook and higher inflation estimate signal fewer rate cuts this year relative to 2024. The Fed last cut policy rate by a quarter percentage point in December and paused in January. Markets see increasing likelihood of a prolonged pause amid inflationary concerns stemming from tariffs on the country's largest trading partners, adding uncertainty to US Q4 earnings momentum. The Federal Open Market Participants’ (FOMC) projections imply a 50bps reduction in policy rates (at 3.75-4.00%) by the end of this year.

The energy sector was the biggest laggard in US  Q4, with earnings contracting more than 25%. The sector was hit by falling crude and fuel prices as global oil demand fell behind expectations in 2024. Top oil producers Exxon and Chevron saw profit contract over 32% and around 40%, respectively. The materials sector also saw profits contract, with chemicals companies LyondellBasel and The Mosaic Co. among those weighed down.

For the current quarter, only 40 of the 98 companies that provided profit guidance issued forecasts above Street estimates, according to FactSet, while 58 missed market expectations. FactSet expects earnings growth at 7.3% y/y for 1Q 2025. The financial data company noted that 259 of the companies that conducted earnings conference calls from 15 December 2024 to 6 March 2025 cited “tariff” or “tariffs” — the highest number of S&P 500 companies citing it over the past 10 years, with the majority from the industrials sector.

Sectoral highlights:

Consumer: Holiday quarter better than expected, but uncertainty remains over impending tariffs

For both consumer staples and consumer discretionary, nearly one-fourth of the companies fell short of revenue expectations. The consumer staples sector posted revenue growth of 2.6% in the fourth quarter, a slight improvement from 1.9% in 3Q, but still towards the bottom of the leaderboard. In the consumer discretionary sector, earnings grew about 25% y/y despite top-line challenges, with over 80% of the companies posting a positive profit surprise, driven by a cost-conscious approach, led by Norwegian Cruise, Wynn Resorts, Carnival Corp. and Amazon, while Tesla and Autozone were laggards. The S&P 500 consumer discretionary sector is the worst-performing S&P 500 sector index so far this year, down around 18%, while the staples sector is the best-performing sector to date this year, up about 3%.

• Amazon reported better-than-expected earnings and revenue, driven by continued strength in the high-margin cloud business and cost-cutting measures. However, it provided disappointing guidance for 1Q due to foreign exchange headwinds, with 1Q revenue expected to grow 5-9%. The low end of the range would mark the slowest pace in history. Amazon Web Services revenue grew 19%, although at a slower pace than competitors’. Strength in advertising business continued with 18% growth, outpacing growth in Amazon’s core retail business.

• Walmart delivered results above Street estimates, benefiting from strong growth in e-commerce, continued gain in grocery share, improved performance in general merchandise and strength in newer businesses such as marketplace and advertising. However, 2025 guidance seemed conservative due to potential tariff-related headwinds and the USD strengthening.

• Tesla missed revenue and profit estimates, but markets took comfort in its plans to launch cheaper electric vehicles in the first half of this year. Automotive revenue fell 8% in the fourth quarter due to reduced average selling prices, while vehicle deliveries increased 2% y/y. However, Tesla expects the vehicle business to return to growth in 2025.

• Target delivered better-than-expected results for the holiday quarter but provided underwhelming guidance in the wake of potential tariff headwinds and soft trends in February amid declining consumer confidence impacting discretionary spending.

 

What to watch:

• Impact of tariffs: Potential tariffs on imports from China, Mexico and Canada will have a negative impact on supply and push prices higher, resulting in headwinds to consumer spending and retailer margins. Most companies have provided a conservative outlook in the wake of impending tariffs.

• The Fed’s interest rate-cut path: Further interest rate cuts by the Fed are likely to have a favourable impact on big-ticket discretionary spending, which has been under pressure in recent years. However, the rate-cut path remains uncertain due to sticky inflation in recent months.

Communications: Yet to see a payoff from pricey AI spending

The sector’s earnings grew almost 26% in US Q4 2024. The S&P 500 US Communication Services Index is down around 10% so far in 2025. Chief executives of the biggest companies in the sector have scrambled to ease investor concern about competition and expenditure in the AI space, with Alphabet CEO Sundar Pichai saying Google's Gemini family of AI models is comparable in efficiency to DeepSeek’s, while Meta’s Mark Zuckerberg said the Chinese startup reinforced his belief that opensource AI is the right strategy.

• Alphabet missed its cloud revenue target and said it expects to spend USD75bn on its AI buildout in 2025, 29% more than that expected by investors who have started to raise concerns over profitability.

• Meta warned that sales in 1Q may miss forecasts, further raising questions about the timeline of payoffs from substantial spending on AI-powered tools. Meta expects total expenses for 2025 at USD114-119bn, up from a total of USD95bn in 2024.

What to watch:

• Meta’s bleeding money at its metaverse-oriented Reality Labs unit, which lost about USD5bn in 4Q despite beating sales expectations.

• Streaming services – Disney forecast that its flagship Disney+ streaming service would lose a “modest” number of subscribers in the coming quarter following a recent price increase. Netflix said it would stop reporting subscriber growth numbers after it added 18.9m subscribers in 4Q – its highest on record. Some analysts said the move to stop reporting may be due to expectations of a slowdown in subscriber growth.

Financials: Fed rate cuts and peppy market prop up banks

The financial sector posted earnings growth of nearly 22% in US Q4 as market activity picked up following the Fed’s move to cut interest rates to prop up the economy. However, US President Trump’s policy moves could see inflation rear its head again, keeping investors on edge. The S&P 500 Financials Index is down about 5% year-to-date (YTD).

• Rebounding markets in US Q4 spurred JPMorgan’s profits to a record high. The bank also forecast that its net interest income (NII) would rise above analyst expectations in 2025, despite a decline in 4Q, the first fall in its NII since 2021.

• Goldman Sachs’s investment banking revenue was the second highest globally, helping it mark its biggest quarterly profit in more than three years.

• Wells Fargo also reported profits that topped estimates and said it expects NII to begin to grow in 2025.

What to watch:

• Removal of Wells Fargo’s (WF’s) regulatory asset cap. The Fed imposed a USD1.95tn asset cap in 2018 that curbed WF’s ability to take in more deposits and expand its trading business until regulators deemed it had fixed failings in its governance and risk management. WF was in the last stages to pass regulatory tests to lift the cap.

• Fed’s interest-rate path. Would an extended pause in rate cuts reduce the benefits that saw banks enjoy a good quarter?

• Any developments in JPMorgan’s succession planning after Chief Executive Jamie Dimon said last year that the timeline could be between 2.5 and 4.5 years. Contenders include Marianne Lake, CEO of consumer and community banking; Troy Rohrbaugh, co-head of the commercial and investment bank; and Mary Erdoes, CEO of asset and wealth management.

Technology: Unsettled by DeepSeek

The technology sector was on course to post near-12% sales growth and around 18% growth in profits for US Q4 2024. The S&P500 Technology Index is down over 17% YTD, the second worst-performing index, as the sector was shaken by the emergence of cheaper competition from China. While the scale of Western tech and its capacity to meet demand and advancement eased concerns to some extent, investors are already sceptical about committed AI expenditure and are likely to scrutinise future spending.

• Nvidia, which has ridden an AI high given its marked leadership in the technology, beat profit estimates and said demand for its new Blackwell chips was “amazing”, easing concerns about a squeeze in margins.

• Apple beat quarterly sales and profits and forecast relatively strong sales growth. It saw a slight drop in iPhone revenue for the quarter, as not all AI features – meant to be the main selling point of its latest devices – were available in some markets.

• Microsoft’s forecast for growth in its cloud computing business was disappointing amid spending concerns, questions around revenue from AI and competition from cheaper AI models from China.

What to watch:

• DeepSeek’s impact on demand for US AI tech.

• Will Intel land Nvidia’s and Broadcom’s deals to manufacture chips? Nvidia and Broadcom are conducting manufacturing tests with Intel to decide whether they want to leverage its advanced production techniques and commit to large deals that could boost Intel, which has been struggling.

Energy: Oil price slide trips Exxon, Chevron

The sector’s profits contracted about 25% last quarter, and the S&P 500 Energy Index is down over 9%. Oil prices dipped, with Brent crude prices down around 30% over the past 12 months, hit by a stalling in the post-pandemic demand recovery, a struggling Chinese economy and oversupply.

• Weak margins dragged Chevron’s refining business into a loss for the first time since 2020.

• Exxon showed weakness in its refining and chemicals business after warning earlier in the month that sharply lower oil refining profits and weakness across its businesses would hit earnings.

What to watch:

• Recovery in oil prices: A Reuters poll showed that tariffs may not lead to price spikes given the scale of supply.

• Chevron-Hess deal: Exxon expects a decision by September regarding Chevron’s USD53bn deal to buy Hess. Exxon and China's CNOOC are Hess's partners in the Guyana oil joint venture and claim that they have a contractual first right to buy Hess’s stake.

Sources:

• CME FedWatch – CME Group

• S&P 500 Daily Global index dashboard

• FactSet Earnings Insight

• Reuters poll on oil prices

• Reuters Magnificent 7 monitor

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