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Investing.com - With more than two-thirds of the benchmark S&P 500 having reported their latest quarterly results, the number of those firms whose earnings have topped estimates is one of the highest in recent history, although a slowdown could be looming in the months ahead, according to analysts at HSBC.
Roughly 80% of reports from constituents in the benchmark index have beat analysts’ profit estimates, with renewed optimism over the applications of artificial intelligence helping paper over concerns over an economic outlook clouded over by sweeping U.S. tariffs.
The S&P 500 is now on track for 10% per-share income growth in the second quarter, almost double initial Wall Street estimates, the HSBC analysts said in a note. Financials and tech firms are "leading the way," with both sectors registering profit upticks in the double digits, they added.
Fueled by the AI boom, tech earnings have been particularly strong, the analysts said, noting that over 90% of these stocks have posted higher-than-projected bottom-line results -- and around half of the sector has not even reported yet. One of the most notable of these upcoming returns is from AI-darling Nvidia (NASDAQ:NVDA), which is due to announce its quarterly figures on August 27.
However, improvements in earnings and sentiment are not broad-based and have been concentrated in only a handful of segments, potentially highlighting the impact of U.S. President Donald Trump’s aggressive tariff agenda, the analysts flagged.
"Corporate guidance sentiment is trending higher in [tech and financials] as well as utilities: all sectors with relatively little exposure to the trade turmoil," they wrote.
"Sectors more exposed to tariffs and regulatory changes, such as consumer staples, discretionary and health care are seeing negative earnings revisions as well as weaker guidance."
A "substantial hit" to margins at more tariff-exposed companies could be coming in the third quarter as inventories -- built up before the announcement of Trump’s heightened "reciprocal" tariffs earlier this year -- are drawn down, they warned.
Although the strategists pushed up their S&P 500 target for the year on the second quarter’s better-than-anticipated earnings, they still expect to see a "mild slowing" in profit growth due to "tariff pressure and a weaker economy."
For the final six months of 2025, S&P 500 earnings per share are tipped to expand by 8% versus the corresponding period last year, down from 12% in the first half.
This outlook is "mainly driven by the resilience of the tech sector while corporates offset some of the impact of tariffs and a slowing economy through mitigation efforts/AI efficiency gains," the HSBC analysts said.