Summary

We have adjusted our estimates of S&P 500 earnings from continuing operations for calendar 2025 and 2026 to reflect potential negative impacts on earnings from higher costs and reduced commerce. We are not sure what will happen with tariffs and White House policy, and may need to adjust our forecasts again in 2025. Our current changes are tweaks rather than big moves. On the upside, the first-quarter earnings season modestly outperformed our expectations, with annual EPS growth of about 14%. On the downside, as tariffs are scheduled and then paused or pushed out, companies are struggling to finalize capital budgets and have proposed a range of strategies. Walmart will pass along tariffs to its customers, but Home Depot will absorb the cost of tariffs. The Walmart strategy, as the company has acknowledged, could result in lost revenue as customers (particularly in the lower tiers of the economy) forego purchases. The Home Depot strategy, in theory, should do a better job of protecting the revenue stream, but inevitably will cut into margins and earnings. We believe most companies will strike a balance, passing along some and absorbing some portion of tariffs. The 'mix' likely will vary from company to company, based on a range of factors. These could include where a company sources raw materials, which regional markets are served, and whi