This summer’s market activity has defied the usual quiet nature of summer periods. A steady stream of headlines, many trade-related, continue to command the attention of financial market participants. 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 having reported 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. The projected earnings growth rate has been 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. Some companies have raised their guidance while others have communicated a more cautious sentiment.
Major U.S. banks, which reported results early, have been a key point of focus. Profits have been bolstered by trading amid market volatility, and management teams cited as positive developments the finalization of President Trump’s budget bill and the potential for deregulation. U.S. bank executives did, however, flag tariffs and trade uncertainty, volatile geopolitical conditions, high fiscal deficits and elevated asset prices as notable risks moving into the second half of 2025. In addition, several strategists have observed that, on a global basis, downward earnings revisions have exceeded upgrades.
Moving Forward
As earnings season progresses, we will watch 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 emerge.
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 1st absent trade deals, a flurry of agreements have been completed. Japan, Indonesia, and the Philippines have negotiated their own bilateral deals in recent weeks, with another agreement 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 1st deadline. While President Trump has stated that no further extensions will be granted, his 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.
If you have any questions, please do not hesitate to contact us.
Drew M. Pallett LL.B.
Senior Portfolio Manager and Investment Advisor
RBC Dominion Securities
Email: drew.pallett@rbc.com