Latest survey: For U.S. stocks, corporate earnings this season are sufficient to outweigh tariff risks

A recent survey shows that despite tariffs casting a shadow over corporate prospects, the U.S. stock market this quarter will be boosted by corporate earnings, with strong earnings performance sufficient to overshadow the risks posed by trade policies.

According to Bloomberg's latest Markets Pulse survey, nearly two-thirds of respondents believe that as the earnings season unfolds in the coming weeks, the risk-adjusted returns of stocks will outperform U.S. Treasuries. This survey, conducted from July 10 to 17 among 102 market participants, indicates that the positive outlook for the stock market continues to be supported by the technology sector, with respondents expecting this sector to perform the strongest in the current earnings season.

The second quarter earnings season for U.S. stocks has just begun, but the earnings expectations for the S&P 500 index have already exceeded analysts' initial forecasts. Before the earnings season began, Wall Street predicted earnings growth of only 2.8%, the slowest growth rate since mid-2023. However, with the banking sector reporting robust results, the overall earnings growth estimate has been slightly revised upward to over 3%.

As of the time of publication, the S&P 500 has slightly risen to 6309 points.

Tech Giants May Continue to Lead Earnings Growth in U.S. Stocks

At the core of this earnings season's outlook is the widening performance gap between tech giants and other companies. Data shows that driven by strong demand for artificial intelligence, the profits of the Mag7 are expected to grow by nearly 15%. In stark contrast, the profit growth of the remaining 493 companies in the S&P 500 index is expected to be "almost zero."

Max Gokhman, Deputy Chief Investment Officer at Franklin Templeton Investment Solutions, stated in an interview:

“It’s interesting that while many companies previously lowered or even suspended their earnings guidance, setting a very low expectation threshold, once the earnings reports are released and exceed expectations, it will make the U.S. market appear attractive again.”

He added:

“When tech companies start releasing their earnings, it will once again prove that they remain an undeniable force in the market.”

Despite the positive earnings outlook, tariff risks remain the primary concern for investors. Survey respondents overwhelmingly identified tariffs as the biggest risk to corporate earnings outlook for the remainder of the year, believing that non-essential consumer goods companies are the most vulnerable under the pressure of tariffs on profit margins.

The impact of tariffs has already begun to show in some corporate earnings reports. General Motors reported on Tuesday that its profits were hit by $1.1 billion due to tariffs. Meanwhile, since the implementation of new tariffs, inflation data has only shown signs that some companies are passing costs onto consumers, indicating that many companies may be absorbing part of the impact themselves.

Few Are Actually Positioning for Tariff Risks

It is noteworthy that there is a significant discrepancy between investors' perception of risk and their actual investment behavior. Gokhman pointed out:

“It’s very interesting that while people generally believe tariffs are the biggest risk, very few are actually positioning for it in their portfolios.” Part of this disconnect is due to different companies exploring various ways to mitigate the impact of tariffs. According to Morgan Stanley, businesses are responding by diversifying their supply chains, exercising pricing power, and renegotiating with suppliers. Strategists, including Michael Wilson, wrote in a report on Monday:

“We have not heard widespread concerns among companies in the index about the impact of tariff-related costs on margins.”

They acknowledge that the situation may change in the third quarter, but “so far, most of the impact has primarily been felt in the consumer goods sector.”

This sentiment is also reflected in investor positioning. Surveys show that slightly more than half of respondents indicated they would maintain their equity exposure over the next month. This suggests that investor confidence in the U.S. stock market is overshadowing any concerns triggered by trade uncertainty