Wall Street has put trade war anxiety "behind them," focusing on interest rate cuts and AI boosting the U.S. stock market bull market

According to the Zhitong Finance APP, as market optimism about the Federal Reserve's interest rate cuts rises, anxiety among most Wall Street investors regarding the global trade war has gradually become a "thing of the past."

Since U.S. President Donald Trump first proposed a large-scale global tax plan in April, the S&P 500 index has risen by 32%, with most forecasters expecting the index to rise further by the end of the year. Market expectations for future volatility remain low, and analysts' expectations for corporate earnings in the first half of 2026 are gradually returning to early-year levels.

Although the Trump administration's tariff policies have dampened corporate confidence and are slowly pushing up consumer prices, Wall Street's current core focus is on the Federal Reserve's interest rate path and the sustained enthusiasm in the field of artificial intelligence, which are the two main factors supporting the bull market in the S&P 500 index.

Bloomberg Intelligence strategists Michael Casper and Wendy Song wrote in a report sent to clients on September 9: "This trade war seems to have become a nightmare, mostly existing only in Wall Street's imagination."

Previously, analysts' downward revisions of S&P 500 earnings expectations set the fastest record since the outbreak of the pandemic in 2020, and now they are quickly raising these expectations. This trend highlights the market's confidence in the growth momentum of U.S. companies, which is precisely the confidence that supports the S&P 500 index during the bull market.

Since hitting a low in July, the S&P 500 index's earnings expectations for 2026 have risen every week over the past nine weeks. Bloomberg Intelligence data shows that the current earnings expectation for the index is $295 per share, roughly in line with the level at the end of April.

Dave Mazza, CEO of Roundhill Financial, stated: "If inflation data rises, tariff concerns may resurface, but this is not enough to dampen the current positive atmosphere. The high probability of interest rate cuts and strong corporate earnings are the core drivers of the stock market's rise, while the AI boom provides additional support."

With corporate earnings in the second quarter growing by 11% year-on-year (three times the previous quarter's expectations), this is attributed to both resilient consumer demand and ongoing investments in the field of artificial intelligence, further boosting analysts' optimism. As a result, corporate earnings expectations for the next three quarters are currently on an upward trajectory.

Recently, United Airlines (UAL.US) also revealed that travel demand has improved, with the company's CEO stating that his confidence in the global economy has significantly increased compared to a few weeks ago.

Data released last week showed that U.S. inflation levels in August met market expectations, indicating that the Federal Reserve's interest rate cut process will proceed as planned. According to the U.S. Bureau of Labor Statistics, excluding volatile food and energy prices, the core Consumer Price Index (CPI) rose by 0.3% from July, with a year-on-year increase of 3.1%.

Michael Kantrowitz, chief investment strategist at Piper Sandler & Co., pointed out that some companies are negatively affected by tariffs, but so far, this impact is more evident in the Institute for Supply Management (ISM) price index than in the Consumer Price Index (CPI). He stated that, similar to many macro concerns, trade policy is essentially a "micro-level issue." He further added that the resilience shown by the market is partly due to a reduction in uncertainty related to tariffs, rather than investors completely ignoring the issue. As the S&P 500 index rises, the Bloomberg index tracking global trade uncertainty has fallen from its peak in April to its lowest level this year.

Dirk Willer, Head of Global Macro and Emerging Markets Strategy at Citigroup, pointed out that the current effective tariff rate in the U.S. is about 9%, significantly lower than the theoretical published rate of around 18%. He believes that the reasons for this gap are mainly twofold: first, "transshipment trade"—where goods are rerouted through low-tariff countries to the U.S.; second, exemptions granted by officials for newly introduced or existing tariff policies.

Whether the trade war will escalate again in the future depends on which of the two actual reasons is at play. Willer stated that if it is the former, there may be risks of further adjustments to targeted tariffs; if it is the latter, it suggests that a "mild trade war" may indeed be one of the policy goals of the current administration.

Matt Maley of Miller Tabak & Co. said, "Tariff issues are no longer the focus of investors. However, as the next earnings season approaches, it is likely to become a market focus again. The impact of tariffs was destined to manifest in the second half of the year, so by October, investors will once again pay attention to companies' statements on this issue."