Earnings sessions always tell a story – this quarter’s narrative is all about sustainability. Second quarter 2025 has largely met expectations and surprised to the upside. This outcome has changed the conversation for equity investors from inflation to growth prospects.
World Markets 2025
Source: FactSet Data and Analytics, Measures the total return of FactSet Country or Regional Index for 2025, ending August 31, 2025, Matco Financial Inc. as at September 2, 2025.
The broad U.S. market showed some excellent strength in fundamental performance, surpassing expectations for the quarter. The beat ratio, the percentage of companies that surpassed the analyst estimated earnings value was above 80%. Within the Matco Global Equity Fund, we saw an 85% beat ratio, surpassing the broad market. This is good news and speaks to the resilience of the economy, the strength of these global businesses despite the excessive pessimism that surfaced in April of 2025.
Diving a little deeper into the sector performance in the last quarter, we did see the impact of tariffs. The real highlight was in the relative change in surprise levels in the second quarter vs the first. Companies that primarily operate in the business-to-consumer channel had a tougher time navigating the tariff impacts. For example, Walmart saw some margin compression as they couldn’t pass as much of the cost increase to the consumer. Whereas business-to-business operators were more successful in passing the tariff costs on to their customers. For example, Fastenal, a distributor of industrial supplies, not only benefited from the pull forward in activity around the uncertainty of tariffs, but they were also able to widen their margins.
It is important to note that the surprise in retail trade has more to do with these companies reporting less bad numbers, not that the sector’s absolute values were inflecting positively.
Earnings Per Share Suprise (%)
Source: FactSet Data and Analytics, Matco Financial Inc. as at September 2, 2025.
For example, Nike and Lululemon beat estimates, but their most recent reports still showed the challenges for the retailers.
We should also touch on the continued strength in services. Be it consumer or technology, the earnings surprises are accelerating from the first quarter and showcasing growth. Whether that is subscriptionbased services (Netflix) or integrated technology giants (Microsoft) the pace of earnings growth has been impressive.
A note on valuations. 2025 has largely seen valuations move sideways. Meaning that while market prices have appreciated, it has been on the back of earnings expansion. A healthy market.
Price to Earnings Ratio
Source: FactSet Data and Analytics, Matco Financial Inc. as at September 2, 2025.
Finally, earnings estimate revisions are progressing with one notable surprise. Analyst estimates are typically revised down over the course of the year as new information materializes. However, within the FactSet U.S. Market index, analyst revisions have increased for the balance of 2025. Another check box for fundamental improvements.
Earnings Estimate Revisions
Source: FactSet Data and Analytics, Matco Financial Inc. as at September 2, 2025.
The Matco Global Equity Fund looks to strike a balance between growth and volatility. Our U.S. positions are typically more focused on the growth equation, while our international positions are more value tilted, looking to support that balance between growth and volatility. You may be asking yourself why I’ve spent so much time on the U.S. market as of late. Traditionally, investors may have focused on the domicile of a company rather than the revenue exposure.
This misses a key market reality – Global markets drive a fair amount of revenue from U.S. markets. Therefore, it’s important to understand the State of the Union of one of the largest contributors to global growth as corporate American health trickles down to firms in the rest of the world. Thinking about a stoplight, fundamentals in corporate America get a green light today.
Europe Revenue Exposure
Source: FactSet Data and Analytics, Matco Financial Inc. as at September 2, 2025.
Emerging Markets Revenue Exposure
Source: FactSet Data and Analytics, Matco Financial Inc. as at September 2, 2025.
Canada Revenue Exposure
Source: FactSet Data and Analytics, Matco Financial Inc. as at September 2, 2025.