The Q1 earnings season of 2025 is crucial, thanks to the tariff-laden scenario. Investors will focus less on actual first-quarter results and more on assessing how emerging tariffs and the broader macroeconomic environment are affecting earnings.
Early reports and guidance updates from initial filers indicate that many companies may have to lower or withdraw their previous forecasts due to the uncertainty created by the new tariffs. Basically, companies are on the verge of shifting business policies. Tariffs will decide how they operate in the future.
Still, investors must be interested to know how earnings and revenues have shaped up in Q1. Investors should note that while earnings normally draw maximum attention, we would like to emphasize that sales are equally important.
This is because sales are harder to adjust in an income statement than earnings. A company can land up on decent earnings numbers by adopting cost-cutting or some other measures that do not speak for its core strength. But it is harder for a company to mold its revenue figure.
Both factors make it necessary to look at sectors that are expected to exhibit strong revenue growth this reporting cycle, no matters what their earnings growth picture look likes.
Expected Revenue Growth for Q1
Per the Earnings Trends report issued on April 16, 2025, earnings for the S&P 500 are expected to be up 6.8% in Q1 while revenues are likely to rise 3.9%. Note that eight out of 16 sectors are expected to register revenue growth in the ongoing reporting season, with expected growth rate ranging from 0.9% to 10.1%.
Below we highlight three sectors that are likely to record strong revenue growth in Q1.
Technology – Technology Select Sector SPDR Fund XLK
The technology sector is projected to register the highest revenue growth of 10.1% in Q1 of 2025. The AI euphoria is known to all, which makes the sector a major beneficiary. Who can ignore the ongoing AI boom?
The rise of China’s lower-cost AI may have hindered the winning momentum of U.S.-based tech companies (which have been investing billions in AI innovations). Still, the overall AI euphoria is here to stay.
Medical – SPDR S&P Health Care Services ETF XHS
The medical or healthcare sector appears well-positioned with a 7.5% revenue growth estimate, the second best in the universe of 16 S&P sectors categorized by Zacks. Investors can take a look at the XHS ETF.
The sector is non-cyclical in nature and has been witnessing consistent job growth in recent times (read: 3 Sector ETFs & Stocks to Gain Amid Upbeat March Jobs Data).
Retail – SPDR S&P Retail ETF XRT
The retail sector is expected to record 4% revenue growth. U.S. retail sales increased 1.4% sequentially in March, greater than the expectation of 1.3% and following a 0.2% gain in February.
Sales marked the largest monthly gain since January 2023. This surge was largely attributed to a 5.3% increase in motor vehicle and parts sales, potentially driven by consumers anticipating auto tariffs. Retail sales excluding autos also rose 0.5% month over month. However, the front-loaded sales pattern may weigh on retail sales in Q2.
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Technology Select Sector SPDR ETF (XLK): ETF Research Reports SPDR S&P Retail ETF (XRT): ETF Research Reports SPDR S&P Health Care Services ETF (XHS): ETF Research ReportsThis article originally published on Zacks Investment Research (zacks.com).
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