Barclays: Q2 U.S. earnings growth may be coming at a higher cost

Investing.com -- Barclays warned that margin pressure could loom large over second-quarter U.S. earnings, with rising tariffs, sticky input costs, and weakening pricing power creating headwinds, particularly outside of Big Tech.

“2Q25 margins [are] at risk as rising cost pressures and tariffs bite, especially in the ex-Tech space,” Barclays analysts wrote in a note previewing earnings season.

They flagged that while the S&P 500 overall has maintained positive operating leverage since the third quarter of 2023, that leverage is now under threat in the broader index excluding Big Tech.

“Operating leverage for SPX ex-Big Tech has been much more tenuous,” the analysts said, noting it is “expected (consensus) to fall back into negative territory in the upcoming earnings season after only inflecting to positive two quarters ago.”

The bank emphasized the increasing reliance of the broader index on a narrow group of large-cap technology firms.

“This illustrates how critical Big Tech has been to keeping SPX margins healthy, and how the rest of the index continues to struggle,” stated Barclays analysts.

Tariffs are expected to have a material impact on Q2 results for the first time this year.

Barclays identified consumer staples, health care, and materials as sectors likely to see cost growth outpace revenue.

Cyclical sectors such as consumer discretionary (ex-Amazon), industrials, and energy are also said to be under pressure, facing “falling demand even as costs remain sticky.”

While a surprise to the upside, similar to Q1, remains possible, Barclays cautioned, “We would be pleasantly surprised if this is repeated in 2Q25.”

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