Fearless of tariff clouds! The Q2 earnings season may become a "shot in the arm" for U.S. stocks, with technology stocks expected to continue gaining momentum

According to the latest Markets Pulse survey obtained by Zhitong Finance APP, the U.S. stock market is expected to shake off tariff risks and gain momentum from the second quarter earnings season. The survey, conducted from July 10 to 17, shows that nearly two-thirds of the 102 respondents believe that as the earnings season peaks in the coming weeks, the performance of the U.S. stock market will outperform U.S. Treasuries and deliver better risk-adjusted returns. Respondents indicated that technology stocks are likely to perform the strongest in this earnings season and continue to support an optimistic outlook for the stock market.

Max Gokhman, Deputy Chief Investment Officer of Franklin Templeton Investment Solutions, stated, "When you set such a low bar, with so many companies lowering or even withdrawing their earnings guidance, and the final earnings exceed expectations, the U.S. stock market becomes attractive again. When tech stocks start reporting earnings, they remain a force to be reckoned with."

Most respondents expect the Q2 earnings season to boost U.S. stocks.

The second quarter earnings season has just begun, but the earnings guidance for S&P 500 constituents has already exceeded analysts' expectations. Before the earnings reports, Wall Street predicted an earnings growth rate of only 2.8%, the lowest level since mid-2023. Influenced by robust bank earnings, the earnings growth expectation has slightly risen to above 3%.

Non-essential consumer goods companies under "immense pressure"

Nevertheless, there remains a significant gap between the seven major tech giants and other constituents of the S&P 500 index. According to data compiled by Bloomberg Intelligence, tech giants are expected to achieve nearly 15% profit growth against a backdrop of strong demand for artificial intelligence, while the profits of the remaining 493 companies have barely grown.

Survey respondents indicated that non-essential consumer goods companies are most vulnerable due to the pressure on margins from tariffs imposed by U.S. President Donald Trump.

Since the implementation of the new tax policy, inflation data shows that companies are passing costs onto consumers, but businesses themselves also seem to be bearing some of the costs.

Which industries are performing the worst in terms of earnings?

General Motors (GM.US) reported on Tuesday that the company lost $1.1 billion in profits due to tariffs, providing a glimpse into the impact of tariffs. Meanwhile, companies like Walmart (WMT.US) are attempting to raise prices in response to the trade war, actions that have angered Trump.

Tariffs pose the biggest risk to corporate profits

When asked which factors pose the greatest risk to corporate profits, the vast majority of respondents mentioned tariffs.

Gokhman added, "Interestingly, while people generally believe that tariffs are the biggest risk, very few take measures to address it." Tariffs pose the biggest risk to corporate profits

Morgan Stanley stated that part of the reason is that as companies explore various ways to mitigate the impact, including supply chain diversification, pricing power, and negotiations with suppliers, the effects will vary among different companies.

In a report on Monday, Morgan Stanley strategists, including Michael Wilson, wrote: "We have not seen significant concerns among the index constituents regarding the impact of tariffs on profit margins. While we acknowledge that this situation may change in the third quarter, so far, most of the impact has been reflected in the consumer goods sector."

Slightly more than half of the respondents indicated that they would maintain their stock exposure unchanged over the next month, suggesting that investor confidence in the U.S. stock market outweighs any trade uncertainties