S&P 500 companies face earnings pressure amid rising tariffs and recession fears

The talk of recession in America has resurfaced. Recessions are, typically, caused by a decline in economic activity that persists for an extended period. But, this time it seems to be different.

Standing by his campaign promises, Trump has initiated a trade war against all countries by imposing tariff rates identical to those imposed by other countries, called ‘Reciprocal Tariffs’.

Increased tariffs affect consumer spending and trade, which ultimately impacts business profits. But, are companies getting concerned about recession and will recession impact the bottom-line of companies?

According to FactSet data, not only are S&P 500 companies bracing for tariff issues, but analysts are also lowering earnings estimates as a result of tariffs. The S&P 500 is a stock market index that measures the top 500 US corporations, accounting for 80% of the total market capitalization of US stocks.

FactSet reported that 259 of the S&P 500 companies that conducted earnings conference calls from December 15 through March 6 have cited the term ‘tariffs’ during their earnings calls for the fourth quarter.

Over the previous ten years, this represents the largest number of S&P 500 firms mentioning ‘tariffs’ during quarterly earnings calls.

At the sector level, the Industrials sector has the highest number of companies (55) citing the term ‘tariffs’ on earnings calls for Q4 2024, while the Materials sector has the highest percentage of companies (82%) citing the term ‘tariffs’ on earnings calls for Q4 2024.

It is interesting to note that the four sectors (Materials, Industrials, Consumer Discretionary, and Consumer Staples) that have the highest percentages of companies citing ‘tariffs’ on earnings calls for Q4 are also the four sectors that have seen the largest cuts to EPS estimates for Q1 to date.

Interestingly, the EPS estimates are also being cut by the analysts. According to FactSet, during January and February, analysts lowered EPS estimates by a larger margin than average. The Q1 EPS estimate decreased by 3.5% (to $60.66 from $62.89) from December 31 to February 27.

This is a big decline in the EPS estimate recorded during the first two months of the first quarter since a long time ago. It was larger than the 5-year average, the 10-year average, the 15-year average, and the 20-year average.

All this, when Trump’s ‘Reciprocal Tariffs’ are yet to be implemented from April 1, 2025. Brace for market volatility in 2025 and keep your investments well-diversified across asset classes.