The postelection stock rally has sputtered. Investors are looking to the coming earnings season to revive it.

The Dow Jones Industrial Average has given up all of its gains since the presidential election, down 0.7% from Nov. 5. The Russell 2000 index of smaller stocks, thought to be one of the biggest potential beneficiaries of a second Donald Trump presidency, has fallen 10% from its recent high in late November.

A spate of hotter-than-expected economic data, including Friday’s blockbuster jobs report, has spurred growing doubts about whether the Federal Reserve will cut interest rates this year. Government-bond yields have soared in response, putting pressure on stocks.

The central bank began bringing down interest rates from a two-decade high last fall but has signaled a more cautious approach going forward. Rate cuts tend to be a tailwind for stock prices because they stimulate economic growth and reduce the appeal of bonds.

Stocks won’t be able to maintain their torrid rise of the past two years and are likely to face greater pressure ahead if yields keep rising, analysts warn.

The Dow industrials and broader S&P 500 are down about 1% in the early days of 2025, while the yield on the benchmark 10-year Treasury note settled Friday at 4.772%, its highest mark since November 2023. 

With the Fed unlikely to cut rates as quickly as investors hoped, analysts say corporate earnings growth—historically one of the biggest drivers of stock gains—becomes even more critical to keeping the market afloat. 

“This fourth-quarter earnings season is probably one of the most consequential earnings seasons that we’re going to see in a long time,” said Larry Adam, chief investment officer at Raymond James.

Investors will parse results from big banks including JPMorgan Chase, Wells Fargo and Citigroup in the coming days, along with those of BlackRock, the world’s largest asset manager. Fresh consumer inflation numbers are on tap Wednesday.

Analysts expect companies in the S&P 500 to report a roughly 12% jump in profits from the prior year, according to FactSet. That would mark the biggest year-over-year gain since the fourth quarter of 2021, but is down from the 14.5% growth analysts had expected in late September.

Just as important for investors, the coming earnings season, the first since Trump’s electoral win, puts corporate leaders in the hot seat to explain how they plan to navigate the president-elect’s populist agenda. 

Some worry that Trump’s proposed tariffs could raise prices for U.S. companies that import overseas products and pass those costs to customers. There are also concerns that Trump’s trade policies and plans for mass deportations could reignite inflation if implemented, and in turn further keep interest-rate cuts at bay.

Strong consumer spending helped keep the economy chugging along in 2024. But consumers, particularly lower-income Americans, began reeling in their spending. Holiday shopping data revealed that wealthier consumers splurged on gifts while lower-income shoppers struggled to pay for necessities such as groceries and child care. 

Early quarterly results suggest that consumers are still tightening their purse strings. Nike last month reported a drop in quarterly sales from the prior year. FedEx lowered its earnings and sales guidance for the fiscal year.

Conagra Brands, which produces Swiss Miss hot-chocolate mix and Pam cooking spray, reported a decline in sales and warned that sticky inflation and a strong U.S. dollar could weigh on its business this year.

“Economic pressures continue to shape consumer purchasing decisions,” Conagra Chief Executive Sean Connolly said on last month’s earnings call. 

Analysts still expect earnings growth to leap in the year ahead. They are projecting a 15% jump in corporate profits from 2024. Some strategists say that blockbuster growth could be hard to achieve, given the political and economic wild cards that investors could face in the coming months. 

Stocks are also looking increasingly pricey, putting more pressure on companies to report financial results that justify their towering valuations. The S&P 500 was recently trading at about 22 times its projected earnings over the next 12 months, above its 10-year average of 18.5 times, according to FactSet.

Some strategists say earnings growth will need to broaden beyond big tech titans to support the next leg of the stock rally. 

Their staggering size has made their ability to deliver profits and positive guidance hugely influential over the market’s direction. The Magnificent Seven—Alphabet, Amazon.com, Apple, Meta Platforms, Microsoft, Nvidia and Tesla—are expected to post a 22% jump in fourth-quarter earnings. That compares with a 8.7% rise from the other 493 companies in the S&P 500, according to FactSet data as of Thursday.

Analysts expect financial companies to see the highest year-over-year earnings growth among the S&P 500 sectors, at about 40%, followed by a 21% jump from communication-services companies, according to FactSet. The energy sector is expected to report the biggest profit decline, at 26%.

“The healthy next step for this market is for everything, the earnings growth but also valuation, to spread,” said Keith Buchanan, senior portfolio manager at Globalt Investments.