The nascent US economic slowdown unfurling across a number of key macro metrics and indicators is starting to impact Wall Street’s profit growth forecasts for corporate America.
In his latest, Goldman’s David Kostin trimmed the bank’s top-down house view for aggregate S&P EPS growth in 2025 to 9% from 11%. The EPS forecast itself — $268 — is unchanged, but between stronger-than-expected results in 2024 and the storm clouds gathering in 2025, the bank no longer expects another year of double-digit bottom-line growth.
“All else equal, the 2024 EPS beat and our 2025 EPS growth forecast would have implied higher levels of earnings in 2025 and 2026 [but] economic data in 2025 have been slightly weaker and the tariff outlook slightly more hawkish than we expected,” Kostin said.
The figure above gives you a sense of how bottom-up consensus has drifted lower to meet Goldman’s top-down forecast.
Remember, bottom-up consensus — i.e., total index EPS as implied by the sum of company analysts’ individual forecasts for the stocks in their coverage universe — comes down as a matter of course. As Kostin put it, “the aggregation of analyst EPS estimates is almost always too optimistic initially.”
The figure below shows you the dynamic. Looking back 40 years, bottom-up consensus is revised 4% lower on average.
As you can see, EPS year 2025’s still tracking quite bullishly, which is either a good sign or, if you’re the glass half-empty type, evidence that company analysts (who in recent years have come to lean on management teams even more heavily than in the past to derive their forecasts) are whistling past the graveyard.
2024, you’ll note, turned out just fine despite a shallower-than-usual revisions path which some might’ve (and surely did) suggest early last year was likewise evidence of analysts being derelict. “By themselves, recent negative EPS revisions are not a particularly bearish signal,” Kostin wrote.
Needless to say, Mag7 profits go a long way towards explaining why profits held up in 2024, and estimates for the group’s 2025 EPS growth have stalled, as shown on the left, below.
That means the so-called “S&P 493” need to pick up the slack. “Consensus 2025 EPS estimates have risen by 18% since the start of last year, compared with a 5% decrease for the S&P 493, but Magnificent 7 estimates have been unchanged since November,” Kostin went on, adding that Nvidia’s revenue beat was the smallest since late 2022, “before the release of ChatGPT.”
For what it’s worth, Goldman’s US GDP tracker, which tipped a 2.6% expansion for Q1 just a few weeks ago, now suggests the economy’s expanding at around half that rate.
“Economic policy uncertainty, especially related to tariffs, has increased sharply, and this has fed into various business and consumer surveys,” Kostin remarked.
