Why did US stocks' Q2 earnings reports frequently exceed expectations? Goldman Sachs: Weak dollar, tariff cost transfer

Thanks to companies successfully mitigating the impact of tariffs and the boost from a weaker dollar, the S&P 500 index constituents performed far above market expectations during the second quarter earnings season.

Goldman Sachs' Chief U.S. Equity Strategist David Kostin pointed out in a recent research report that in the second quarter, the overall earnings per share of S&P 500 companies grew by 11% year-on-year, far exceeding the previous market expectation of 4%. Kostin noted that this quarter saw "one of the highest frequencies of earnings beats on record." Among the 92% of S&P 500 constituents that have reported earnings, 60% of companies exceeded earnings expectations by more than one standard deviation.

The report believes that the resilience of corporate profit margins under tariff pressure exceeded expectations, mainly due to companies employing multiple strategies such as negotiating with suppliers, adjusting supply chains, cutting costs, and passing on price increases to consumers. At the same time, the weaker dollar provided additional momentum for corporate sales growth, but strategists warned that small businesses face greater risks in sales growth.

Companies' Multi-Strategy Response to Tariff Impact

U.S. companies have demonstrated stronger-than-expected adaptability in the face of tariff pressures.

According to Goldman Sachs strategists, the stability of corporate profit margins is primarily attributed to the diversified response strategies adopted by companies.

Companies effectively mitigated the negative impact of tariffs by renegotiating contract terms with suppliers, adjusting supply chain layouts, implementing cost-cutting measures, and passing some cost pressures onto consumers. These measures helped companies maintain profitability in an environment of escalating trade friction.

Expectation Management Boosts Outperformance

Market expectation management played an important role in the outstanding performance of this earnings season.

After Trump announced reciprocal tariffs, analysts significantly lowered earnings expectations, creating a relatively low performance benchmark for companies.

Kostin had previously warned in June that if companies were forced to "bear a share of tariff costs that exceeded expectations," profit margins would come under pressure. However, the actual situation showed that companies successfully mitigated this risk through various strategies.

Weaker Dollar Boosts Sales Growth

The weaker dollar has become an important factor driving the acceleration of sales growth for S&P 500 companies in the second quarter.

According to Goldman Sachs strategists, currency fluctuations have brought significant revenue boosts to large multinational companies.

However, strategists also pointed out that compared to large companies, small firms face greater risks in sales growth, mainly because they cannot fully benefit from the exchange rate advantages brought by a weaker dollar like large multinationals can. This disparity may further exacerbate performance differentiation between companies of different sizes