Investors Brace for First Earnings Season Under Trump Tariffs Amid Dollar Drop and Uncertainty

U.S. companies are preparing to report second-quarter earnings as markets weigh the effects of President Donald Trump’s newly launched tariff war. Earnings growth is expected to slow, with analysts forecasting a 5.8% increase compared to 13.7% in Q1, according to LSEG data. Big banks like JPMorgan Chase will kick off the earnings season on July 15, and investors are eager to see how businesses have weathered the early stages of the escalating trade conflict.

Trump expanded his trade war in July by announcing steep tariffs, including a 50% duty on imported copper and new tariffs looming on semiconductors and pharmaceuticals. He also issued an ultimatum to 14 nations, including Japan and South Korea, threatening higher tariffs by August 1. While only Britain and Vietnam have concluded deals with the U.S., negotiations with others—particularly China—are ongoing, adding layers of uncertainty to the corporate outlook.

Investors remain divided on the impact of tariffs, as companies have so far shown resilience, with fewer earnings warnings than expected in Q1. However, strategists warn that the real effects might only begin to show now. Tariffs could lead to higher prices and slower growth, while the uncertainty around future trade policies continues to stall business decisions and investment planning.

The weaker U.S. dollar, which dropped about 7% in Q2 and 10% year-to-date, could act as a partial offset to the tariff impact, especially for large multinational firms. This currency drop, the sharpest since 1973 for a first half, improves the competitiveness of U.S. exports. Analysts say the dollar’s fall may lead to earnings surprises from globally exposed companies in the S&P 500, offering a potential silver lining.

Technology and communication services are projected to lead Q2 earnings growth, with gains of 17.7% and 31.8% respectively. Optimism about artificial intelligence continues to drive investor sentiment, highlighted by Nvidia’s brief $4 trillion market valuation. As the S&P 500 hits record highs, analysts caution that strong results from megacap stocks will be crucial to justifying lofty valuations amid policy risks.

Source: Reuters