Why tariffs won't kill corporate earnings
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Illustration: Maura Losch/Axios
The second-quarter earnings season kicks off Tuesday with some of the major banks set to report. While tariffs are likely to come up through this cycle, it's not the main focus for investors.
Why it matters: Wall Street has moved on from the trade war. The question is whether consumer spending effects that show up this earnings cycle will force investors to reckon with the real-world impact of the levies.
By the numbers: Earnings growth estimates for the quarter have declined substantially, from 13% last quarter to 4.8%.
- That's the lowest year-over-year projected growth since 2023.
What they're saying: "I don't want to say companies get a pass, but I think ... you have a lower bar right across the board," says Michael Hans, chief investment officer at Citizens.
- The continued shifts in tariff policy could make it hard for companies to model out their impact.
- Regardless, with earnings expectations this low, stock pops like the one Delta Air Lines had after reinstating its full-year guidance are more likely.
- Some investors don't like that kind of a pop because it's seen as "artificial," according to Max Kettner at HSBC.
- "Maybe that's an artificial effect, but it's still going to make me ... money, and that's pretty real, so I'll take it," he says, reiterating that he thinks earnings will be strong this quarter.
What to watch: If not tariffs, what should you hyperfixate on this earnings season? Here are three other major themes that could define this cycle, according to dozens of interviews and strategist notes reviewed by Axios:
- Corporate resilience: Watch for forward guidance coupled with reiterated or expanded capital expenditures, which could fuel economic resilience.
- AI beyond tech: Investors hope to see wider AI adoption boosting profits across several industries. That could lead to a broadening of earnings growth outside of just the Big Tech names.
- Dollar weakness: Dollar declines are good for corporate profits. About 40% of the market's revenue is international, and when that money is converted into a weaker dollar, it cushions earnings, according to HSBC.
The bottom line: To be sure, tariffs could certainly come up for consumer-facing companies, especially smaller ones without the balance sheets to withstand their effects.
- But overall, investors are looking ahead to 2026, according to David Kostin at Goldman Sachs — meaning they're primed to look past the impact of this year's tariff policies.
