All eyes on profit margins 👀
The stock market metric to watch in 2025 📈
Wall Street expects S&P 500 earnings to grow at a double-digit pace in 2025 and 2026. It’s how analysts are justifying their forecasts for price growth, which makes sense, as earnings are the most important driver of stock prices.
However, those earnings estimates are widely based on the assumption that profit margins expand to record levels in 2025.1
In a nutshell: The economy is expected to grow, but at a modest pace. This should help drive single-digit sales growth. But positive operating leverage will drive profit margin expansion, which will amplify earnings growth to a double-digit pace.
If margins do indeed expand, it would be a continuation of the most surprising business story of the past four years.
