Judging by the highlights from this earnings season, US businesses are in fine shape. Most S&P 500 companies have now reported their second-quarter results. According to FactSet, 81 per cent have beaten analysts’ revenue forecasts, and the index is on track for double-digit growth in year-on-year earnings for the third consecutive quarter.
The resilience is impressive. Even though US President Donald Trump’s “reciprocal” tariffs were largely delayed until August 7, ongoing economic uncertainty and levies on autos, steel and aluminium had crimped business activity throughout the second quarter, both at home and abroad. Reports for companies in the Stoxx Europe 600 indicate that it is set to record barely any annual earnings growth in Q2, based on research by Bank of America.
What then explains the US’s solid results? First, industries directly in the crosshairs of tariffs account for less than 17 per cent of S&P 500 earnings, estimates Deutsche Bank. Even so, the Q2 reports show that many affected organisations managed to protect their margins by adopting several mitigation strategies, ranging from cutting costs and building up inventories to raising prices and finding alternate suppliers. The breadth of responses limited the contagious impact of higher prices and lay-offs across domestic supply chains and, in turn, the wider economy.