S&P 500 Earnings Estimates Face Downside Risk Amid Persistent Tariff Headlines

Citi strategists caution that the current consensus earnings estimates for the S&P 500 may not fully reflect the risks posed by the tariffs proposed by former President Donald Trump. While a robust fourth-quarter performance set a strong tone for 2025, potential tariff impacts might force analysts to revise these estimates downward.

Earnings Outlook and Tariff Concerns

Despite solid fundamentals following an impressive fourth-quarter earnings season, Citi anticipates that consensus 2025 earnings estimates could drop to the $265-$268 range before eventually stabilizing near their $270 target. The strategists point out that while the current estimates are resilient, they have not fully embedded the potential adverse effects of ongoing tariff policies.

“Tariff headlines persist, and we are approaching key implementation dates,” Citi strategists noted, emphasizing that many analysts—including themselves—remain in a "wait and see" mode.

“We can do sensitivity analysis, but likely require more granularity before building policy effects into base case assumptions.”

This cautious stance is driven by several factors:

• Enduring Tariffs: Continued uncertainty around the implementation and impact of tariffs.
• Slowing Macroeconomic Environment: Signs of a cooling economy that could further pressure corporate margins.
• Negative Fiscal Impacts: Potential fiscal tightening that may reduce economic growth.

Historical Data and Earnings Revisions

Historical trends suggest that a positive earnings surprise—like the fourth-quarter beat—often sets the stage for sustained performance in subsequent quarters. However, Citi's strategists warn that the strong current fundamentals might be at risk if further policy-induced headwinds materialize. In fact, they expect some downward revisions to the consensus 2025 earnings estimates, which traditionally bottom out in mid-April.

For those interested in a deeper dive into earnings trends and revision patterns, Financial Modeling Prep's Historical Earnings API offers a comprehensive look at past earnings performance and analyst revisions.

Valuation Metrics and Market Fundamentals

Even as risks emerge from tariff uncertainties, it's important to note that the S&P 500 entered 2025 with strong fundamental support. Citi's analysis underscores that, despite the looming risks, the market remains anchored by robust earnings data. For a closer look at key valuation metrics, the Key Metrics (TTM) API provides valuable insights into earnings multiples and other critical financial ratios.

Conclusion: Balancing Strength with Caution

While the fourth-quarter earnings beat has de-risked some of the fundamental growth challenges for the year, Citi strategists remain vigilant. They stress that the combination of enduring tariff headlines and broader macroeconomic headwinds could lead to further revisions of earnings estimates. Investors are encouraged to monitor policy developments closely, as the unfolding tariff impacts could introduce additional volatility to the S&P 500's earnings outlook.

For ongoing updates on market performance and further analysis on earnings trends, explore Financial Modeling Prep's suite of APIs, including the Historical Earnings API and the Key Metrics (TTM) API.