Robust 2Q earnings for the S&P 500. We are midway through the US earnings season, with c.69% of the companies having reported their earnings (as of 4 Aug 2025). Results have been exceptionally strong, with 82% of the companies reporting positive earnings surprises, surpassing the previous quarter’s 77%. This robust performance demonstrates the ongoing resilience of US corporate earnings despite tariffs and policies uncertainties. The technology, communication services, and financials sectors have produced the highest positive earnings surprises at 93%, 93%, and 91% respectively. This earnings strength has broadly translated into strong sectoral outperformance, with YTD returns of 13.3% for technology and 14.2% for communication services (vs 7.6% for the S&P 500).
From a sectoral perspective, we continue to favour technology and communication services, especially Big Tech, for their strong market positioning, robust cash flow generation abilities, and structural tailwinds from AI adoption. Furthermore, newly imposed tariffs on foreign trading partners have driven the US’ effective tariff rates to their highest level in decades. Given their structurally higher operation margins (c.27% and c.24% for technology and communication services respectively, vs S&P 500 at c.15%), these sectors will be in better positions to offset the impact.
We are also positive on financials. This sector stands to benefit from clarity on tariff policy and Trump’s potential deregulation policy, which will drive loan growth and ignite recovery in capital markets activities.
Equity fund flows: During the week ended 30 Jul, Developed Market (DM) Equity Funds attracted substantial inflows of USD18.8bn, while Emerging Market (EM) Equity Funds posted modest inflows of USD0.8bn. Within the DM space, US and Europe Equity Funds registered inflows of USD9.0bn and USD1.8bn, respectively, supported in part by positive sentiment following the EU’s newly secured trade agreement with the US. In the EM space, China Equity Funds experienced a reversal from the prior week’s inflows, recording net outflows of USD1.1bn.
Source: Bloomberg, DBS
Equity Research Highlights
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