As we’ve noted in some recent letters, the typically quiet nature of the summer period has been anything but. A steady stream of headlines―many trade-related―continue to command the attention of financial market participants. Meanwhile, the second-quarter U.S. earnings season is now in full swing, as we continue to watch for signs of tangible tariff impacts and pay close attention to guidance for the rest of the year and into 2026. We discuss more below.

 

Q2 Earnings

 

Q2 earnings season is well underway, with 112 S&P 500 companies reporting this week. At the time of writing, the results have been solid, with companies exceeding estimates at a higher clip than the long-term average, and the projected earnings growth rate trending higher.

 

Management commentary, on the other hand, has been mixed across sectors. A blend of themes―ranging from policy developments and geopolitics to foreign exchange moves, consumer strength, and AI-related spending― have driven sectoral divergences. Accordingly, some companies have raised their guidance while others have adopted a more cautious message.

 

Major U.S. banks, which reported results early, have been a key point of focus. Profits were bolstered by trading amid market volatility, and management teams cited the finalization of President Trump’s budget bill and the potential for deregulation as positive developments. However, U.S. bank executives also flagged tariffs and trade uncertainty, volatile geopolitical conditions, high fiscal deficits, and elevated asset prices as notable risks as we move through the second half of the year. Additionally, several strategists have observed that downward earnings revisions have exceeded upgrades globally, another trend to keep an eye on.

 

Moving Forward

 

As earnings season progresses, we will be watching closely for signals across several key topics. The AI investment theme remains largely intact despite earlier concerns over the sustainability of outsized capital spending, particularly following the emergence of China’s DeepSeek AI model. With “Magnificent 7” earnings results starting to flow through, management guidance on expenditures for the rest of the year and into 2026 may provide some insight into this trend. Expectations are high for these large-cap U.S. tech companies, potentially raising the stakes should signs of weakness appear.

 

Equally important will be management commentary on trade-related disruptions and their potential impact on profit margins. Some export-reliant companies have already cited rising tariff-related costs for downward pressure on profits. While the outlook for corporate profitability remains constructive, any further indication that U.S. trade policy is undermining business performance or consumer demand could be a source of renewed market volatility, even if temporary.

 

Other Developments on the Horizon

 

Trade policy developments remain fluid. After a series of “letters” in which President Trump threatened to unilaterally impose tariff rates by August 1^st absent a deal, a flurry of agreements have begun to flow through. Japan, Indonesia, and the Philippines have negotiated their own bilateral deals in recent weeks, with another deal reportedly on the horizon with the European Union. We are monitoring the pace of dealmaking along with sector-specific tariffs closely as we near the August 1^st deadline. While President Trump has stated no further extensions will be granted, the administration has so far shown a reluctance to follow through on policies that have generated adverse market reactions.

 

We remain cognizant of elevated equity market valuations, with many major indices near record highs. Nevertheless, the initial batch of S&P 500 earnings has provided some grounds for cautious optimism. As U.S. trade deadlines approach in August, we are monitoring both negotiations and corporate guidance for signs of how tariffs, geopolitics, and broader macro uncertainty may affect the outlook

 

Should you have any questions, feel free to reach out.