Summary of Earnings Season Takeaways: Adjusting to the New Environment Industry Overview - The report focuses on the S&P 500 companies and their performance during the Q2 earnings season, analyzing macroeconomic implications from micro-level insights [3][6][7]. Key Points Revenue Growth vs. Economic Activity - S&P 500 companies reported strong revenue growth of 4.8% year-over-year, contrasting with a slowdown in overall economic activity, as GDP growth decreased from 2.5% in Q4 2024 to 2.0% in Q2 2025 [3][11]. - Real revenue growth for S&P 500 companies, excluding the energy sector, was 4.8%, up from 3.3% in Q4 2024, while mid- and small-cap companies experienced revenue declines [3][8][11]. Consumer Sentiment and Spending - Consumer sentiment improved after a significant drop in the previous quarter, but the outlook for H2 2025 remains challenging, with a forecast of only 1% annualized real consumer spending growth [3][15][19]. - Sales growth for consumer-facing companies increased, with median growth of 1% for consumer staples and 4% for consumer discretionary companies [15][19]. Impact of Tariffs - Discussions around tariff uncertainty have shifted to the actual costs imposed by tariffs, with many companies reporting strategies to mitigate these costs, such as negotiating with suppliers and passing costs to customers [3][26][30]. - Tariff-related costs were significant, with companies like Ford and Apple reporting impacts of approximately $800 million and $1.1 billion, respectively [31]. Business Investment Tax Incentives - The One Big Beautiful Bill Act (OBBBA) is expected to boost capital expenditures (capex) over the next few years, although its impact on Q2 guidance was limited as it was widely anticipated [3][40][41]. - Job openings at companies benefiting from increased capex have declined less than the average public company since the election [41][44]. Labor Market Dynamics - The labor market has shown signs of rebalancing, with mentions of labor costs and layoffs decreasing in earnings calls, indicating a less tight labor market [22][23][24]. - Job growth has been tepid, and the forecast for real income growth is only 1.5% in 2025, down from 2.3% in 2024, with lower-income households expected to face challenges due to cuts in benefits [19][21]. Overall Economic Outlook - The economic outlook remains cautious, with GDP growth projected to slow down to 1.7% in 2025, and inflation rates expected to stabilize around 2.8% [48][49]. - The report emphasizes the divergence between corporate revenue growth and overall economic activity, highlighting the resilience of larger companies amid broader economic challenges [3][11][12]. Additional Insights - The report indicates that while companies are facing challenges from tariffs and economic conditions, many are adapting through strategic adjustments in their operations and pricing [3][26][33]. - The sentiment around consumer health, while improved, still reflects underlying economic pressures that could affect future spending [15][19].