Earnings growth uncertain as inflation and policy shifts weigh on corporate outlook

ABC News - Jan 2nd, 2025
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Wall Street anticipates a significant surge in corporate profits for 2024 and an even stronger performance in 2025, with S&P 500 companies expected to report a 9.4% growth in earnings for 2024. This marks a notable increase from the previous year's 1.4% growth. The positive outlook is attributed to a robust labor market supporting consumer spending, alongside eased inflation rates, which have helped companies manage costs better. However, as companies prepare to report their final quarterly results for 2024, they face uncertainties such as economic policy shifts, inflation, and changes in the job market that could impact their performance. The Federal Reserve's interest rate policies and potential tariff implementations by incoming President Donald Trump add further complexity to the economic landscape.

The implications of these developments are substantial, as the anticipated profit growth is seen as a critical factor for justifying broader market gains, especially given current market valuations. The Federal Reserve's recent rate cuts and potential future actions will play a significant role in shaping borrowing costs and consumer spending. Trump's proposed tariffs could lead to increased prices for imported goods and provoke retaliatory measures, adding inflationary pressures. Additionally, the new administration's stance on deregulation and immigration could influence business costs and labor market dynamics. These factors together create a complex environment for businesses navigating profitability and market performance in 2025.

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RATING

6.4
Moderately Fair
Read with skepticism

The article provides a detailed overview of Wall Street's expectations for corporate profits in 2024 and 2025, touching on various economic factors that could impact these projections. It presents a broad analysis of potential influences on the market, such as inflation, interest rates, and political changes. However, the article could benefit from more balanced representation of perspectives and improved transparency regarding its sources. Overall, it serves as a useful primer on the topic but falls short in certain areas like source attribution and providing a comprehensive range of viewpoints.

RATING DETAILS

7
Accuracy

The article generally maintains factual accuracy, with claims about corporate profit projections and economic conditions largely aligning with typical market analyses. For instance, the expected 9.4% growth in S&P 500 earnings for 2024 and the factors influencing it, such as inflation and consumer spending, are reasonable. However, some claims, like the specific impact of President Trump's proposed tariffs, require further evidence or data to substantiate them fully. Additionally, while the article mentions the Federal Reserve's interest rate cuts, it does not specify the exact dates or circumstances of these decisions, which would enhance its factual precision.

6
Balance

The article predominantly reflects a financial perspective, focusing on the impact of economic policies and market trends on corporate profits. While it touches on various factors like tariffs and deregulation, it mainly presents the viewpoint of investors and market strategists. It briefly acknowledges potential negative outcomes, such as increased costs due to tariffs and immigration restrictions, but these are not explored in depth. The article could benefit from a more balanced representation of perspectives, including those of labor groups, consumers, or smaller businesses that might be affected differently by the described economic conditions.

8
Clarity

The article is generally well-structured and clear, presenting complex economic information in an accessible manner. It maintains a professional tone and organizes content logically, progressing from current profit forecasts to potential future influences like tariffs and regulatory changes. However, some segments discussing the impact of political changes could be clearer, particularly concerning how these might specifically affect different economic sectors. Despite these minor issues, the article effectively communicates its main points without excessive jargon, making it understandable for a broad audience interested in financial news.

5
Source quality

The article relies on a limited number of sources, primarily quoting investment strategist Ross Mayfield and economist Sung Won Sohn, without providing detailed citations or background information about these sources. FactSet is mentioned as the provider of earnings growth data, which is a credible source. However, the article lacks a diverse range of voices or corroborating sources that could strengthen its credibility. Including references to additional expert analyses, reports, or data from authoritative financial institutions would enhance the article's reliability and provide a more well-rounded view.

6
Transparency

While the article provides some context for its claims, such as the expected effects of political changes on the economy, it lacks transparency regarding the basis for certain statements, such as the specifics of the Federal Reserve's interest rate decisions or the exact nature of the proposed tariffs by President Trump. The article doesn't disclose any potential conflicts of interest or affiliations of the quoted experts, which would be beneficial for readers to evaluate the impartiality of the information presented. Greater transparency about the methodologies or rationale behind the projections would improve the article's trustworthiness.