America's "Divergence": Technology and Finance "Unstoppable," Consumer Sector Struggles

The earnings season for American companies paints a picture of a dual economy.

The U.S. economy is showing an increasingly widening divergence. Financial giants on Wall Street and tech titans in Silicon Valley are ignoring the impact of tariffs, recording substantial profit growth, while consumer-facing companies are struggling amid rising costs and uncertainties brought about by the trade war.

The latest second-quarter earnings reports highlight this trend. According to FactSet data, profits in the technology and financial sectors surged by 41% and 12.8% year-on-year, respectively. However, profits for consumer goods and materials companies fell by 0.1% and 5%, with more than half of the S&P 500 companies that have reported results experiencing a contraction in profit margins.

At the same time, macroeconomic data is also raising warning signals. The U.S. Bureau of Labor Statistics reported last Friday that the number of new jobs added from May to July plummeted to 106,000, down from 380,000 in the previous three months. According to calculations by the Financial Times, the annualized economic growth rate in the U.S. for the first half of 2025 is only expected to be 1.1%, significantly lower than the 2.9% in the second half of last year.

This divergence is directly transmitting to the capital markets. Investors are particularly reactive to companies that underperform expectations; according to FactSet, the stock prices of such companies fell an average of 5.6% around the time of earnings announcements, far exceeding the five-year average of 2.4%, indicating deep concerns in the market about corporate profit prospects.

Profit Squeeze Under Tariff Shadows

Beneath the seemingly strong overall economy, most American companies are facing slowing profits and extreme uncertainties brought about by the trade war. According to data from Société Générale, 52% of the S&P 500 companies that have reported results indicated a decline in profit margins.

Andrew Lapthorne, the global head of quantitative research at the bank, pointed out that while sales are rising, profit margins are under pressure, indicating that “costs are rising, but companies have not yet passed them on to consumers.”

Tariffs are a major source of pressure. Last Friday, U.S. President Trump raised effective tariff rates to the highest levels in decades. Ryan Grabinski of Strategas Securities noted that manufacturers of automobiles, airlines, and durable goods like refrigerators are the most impacted, with their net income forecasts for this year being revised down the most, which “is not surprising given their direct connection to tariffs.” Ford Motor Company is an example, as the company suffered an $800 million hit due to Trump's tariff policies, leading to an unexpected quarterly loss.

Tech and Financial Giants Thriving

In stark contrast to the struggles of the real economy, tech and financial giants are performing strongly. The largest 10 stocks in the S&P 500 contributed one-third of the entire index's profits. Microsoft announced a 25% surge in quarterly profits last week, while Meta's net income also grew by 36%.

David Stubbs, chief investment strategist at AlphaCore, stated that for large tech companies, this is another “robust earnings season, with bulls focusing on their increasing capital expenditures in artificial intelligence.” He added, “In other areas, the impact of tariffs is beginning to show,” with hopes that investments in artificial intelligence can sustain economic growth

Macroeconomic Alarm Sounds

The differentiation at the corporate level has also been confirmed by macro data. According to calculations by the Financial Times, the annualized growth rate of the U.S. economy in the first half of 2025 is only 1.1%, far below the 2.9% in the second half of last year. The cooling of the job market is also significant.

Analysts believe that some of the tailwinds for economic growth may have already run out. David Stubbs pointed out, "It must be acknowledged that some of the tailwinds previously brought by increased immigration and expanded fiscal spending have come to an end." This adds more uncertainty to the future direction of the U.S. economy