Q4 Earnings Recap: US Large-Cap is Peerless

• S&P 500 earnings exceeded analyst expectations by 6.8% with revenues 1.8% higher than expected; technology sector earnings surpassed expectations by 7.6% with year-over-year growth of 32.5%
• AI-driven infrastructure build supported strong cyclical sector performance, with Industrials growing 34.8% and Materials growing 24.1% year-over-year
• US small-cap earnings growth turned negative with only five sectors showing positive growth, while European revenue growth fell from flat to negative, and Japanese earnings surprises turned negative despite overall relative health

Q4 2025 Earnings Recap Summary

Key Findings:

US large-cap equities demonstrated exceptional strength in Q4 2025, with S&P 500 aggregate earnings beating analyst expectations by 6.8% and technology sector earnings surpassing forecasts by 7.6%. Revenue came in 1.8% higher than expected, with only consumer staples falling short.

Year-over-year growth remained robust, with S&P 500 earnings up 13.6% and sales growth at 9.2%. Technology sector earnings surged 32.5% year-over-year, indicating continued AI momentum. Cyclical sectors also showed strength: Industrials grew 34.8% and Materials 24.1%, likely driven by AI infrastructure investment.

Market Segments:

The analysis covered four markets using three earnings principles: earnings/revenue surprises, analyst adjustments, and long-term trends.

• US Small-Cap: Strong on two principles but earnings growth turned negative, with concerning weakness in financials
• Europe: Deteriorated from Q3, with earnings surprises moving from positive to flat and revenue growth turning negative
• Japan: Maintained relative health with four of five indicators positive, though consistency remains a concern

Key Takeaways:

No significant signs of tariff disruption or AI slowdown emerged from the earnings data. Energy sector showed negative sales growth due to lower crude oil prices, while consumer discretionary weakness stemmed from automobiles and homebuilding facing tariff-driven input cost pressures.

Investment Implications:

RiverFront maintains overweight positions in US large-cap stocks across balanced portfolios, with selective investments in Europe and Japan tilted toward Value and Financials. The firm emphasizes monitoring corporate surveys and earnings guidance given increased geopolitical uncertainty.