Wall Street Faces First Post-Tariff Earnings Test
The upcoming Q2 earnings season marks the first major test for U.S. equities since the implementation of new tariff policies. Kicking things off on July 15, major U.S. banks are set to report results amid rising input costs and mounting concerns over profit margins. Analysts forecast a modest slowdown in S&P 500 revenue growth—from 5% in Q1 to 4% in Q2—while EPS growth is expected to decelerate sharply from 12% to just 4%, as margin pressures weigh on bottom lines.
As the S&P 500 wrapped up the first half of 2025 at record highs, the index is now trading at 22x forward earnings—well above historical averages. UBS notes that valuations remain elevated amid cooling growth expectations, though AI resilience may continue to support market multiples in the near term.
Goldman Sachs maintains its full-year EPS forecast for the S&P 500 at $262, reflecting 7% growth, with a year-end target of 6,100 and a 12-month price target of 6,500. The bank believes that while tariffs will likely drag on economic growth and pressure cyclical sectors, those headwinds could be offset by strong secular gains in tech and communication services.
Tariff Impact Front and Center in Q2 Earnings
Second-quarter results will offer the first real look at how new tariffs are hitting corporate America. The effective tariff rate has surged from 3% at the start of the year to 13%, and Goldman economists expect it to reach 17%. Investors will be closely watching how the new duties are impacting revenue, margins, and capex plans.
Large-cap tech is expected to once again do the heavy lifting, with EPS growth of 28% in communication services and 18% in information technology likely to drive overall S&P 500 earnings. Meanwhile, energy is expected to be a drag, with sector EPS projected to plunge 28% year over year.
Bank Stocks in Focus After Stress Test Boost
On June 27, 22 major U.S. banks passed the Fed’s annual stress test, showing strong capital resilience and clearing the way for increased dividends and share buybacks. Shares of top names like Goldman Sachs, JPMorgan, Bank of America, and Citi all surged to new highs following the news.
Analysts see improving credit quality and loan flow as tailwinds for bank earnings, though uncertainty around tariffs may dampen corporate loan demand. Net interest income (NII) forecasts for 2025 have been slightly revised higher, supported by fewer expected Fed cuts and stronger loan growth. Goldman projects 4% YoY growth in Q2 NII, helped by easing deposit costs.
Management guidance is expected to remain largely unchanged due to lingering macro and rate volatility. Trading revenue is forecast to rise in the mid-to-high single digits, with market volatility boosting equities, fixed income, and commodities trading. Investment banking activity is also showing signs of recovery from Q1 levels.
On the downside, pockets of stress persist—especially in construction, agriculture, and commercial real estate. While most commercial and industrial credit quality remains stable, regional variations are worth monitoring.
Overall, sentiment around bank earnings remains optimistic: steady NII, robust capital positions, and credit stability all point to a solid quarter. However, tariff-related risks, expense normalization, and broader macro headwinds still loom. A strong Q2 showing could fuel renewed investor rotation into the sector.
