The theme of the moment in financial markets is the resilience of US stock values. President Trump is imposing billions of dollars in new import taxes on US firms, yet the S&P 500 (^GSPC) index is up 26% from its April low and fresh off several record highs. Investors who shunned US assets just a few months ago are now aggressively buying.
However, numerous warning signs have emerged during the second quarter earnings season as companies outline the ways Trump’s tariffs are hurting profits, disrupting operations, and forcing price hikes onto consumers. Tariffs are not hitting every company, since they mainly affect goods, and many of America’s top firms are service providers. But some analysts think the negative tariff effects are widespread enough to take the wind out of stocks soon.
With second quarter earnings in for about two-thirds of S&P 500 companies, Yahoo Finance’s Grace O’Donnell has identified more than four dozen large firms saying tariffs are impacting their businesses in some material way. Some are able to quantify the monetary effect on earnings. Others expect tariffs to hit their finances but aren’t yet sure how. And some CEOs have been blunt about price hikes heading toward consumers.
Manufacturers are bearing a large portion of the tariff cost, since many rely on imported components that are now more expensive. Caterpillar (CAT), Kimberly-Clark (KMB), BMW (BMW.DE), Ford (F), Harley-Davidson (HOG), Hyundai (HYMTF), Tesla (TSLA), GE Aerospace (GE), 3M (MMM), and General Motors (GM) are among the companies saying tariffs reduced earnings in the second quarter. Ford, as one example, said tariffs would knock $2 billion off earnings this year. Caterpillar expects a tariff hit of at least $1.3 billion. Kimberly-Clark’s tariff loss will be around $170 million.
Read more: The latest news and updates on Trump’s tariffs
It’s not just manufacturers. Companies that import products they sell to consumers are suffering too. Apple (AAPL) expects tariffs to cut earnings by nearly $2 billion for the six months through Sept. 30. Hershey (HSY) said tariffs will cost it at least $170 million this year. VF Corp., whose brands include Vans, The North Face, and Timberland, sees a $250 million hit to earnings through 2026.
Some of America’s biggest consumer goods producers, including Procter & Gamble (PG), Mattel (MAT), Columbia Sportswear (COLM), and L’Oreal (LOR.F), say they’ll have no choice but to pass some of their higher costs onto consumers. Many executives discussing the Trump tariffs say it’s too soon to assess the impact of import taxes that have only been in place a couple of months, which means a lot more bad news may be in the pipeline.
The disconnect in markets right now is that tariff impacts that are causing headline damage for a lot of individual companies don’t yet seem to be depressing overall earnings. Roughly 80% of companies reporting their earnings so far have beaten analyst estimates, according to FactSet. That’s better than the usual beat ratio. Earnings growth has also been solid, and Wall Street forecasts for the third quarter are even better, despite the tariffs. Solid actual earnings and robust forecasts for future gains are the driving forces motivating investors to buy.
Read more: 5 ways to tariff-proof your finances
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The question is will it last, and there are several reasons for doubt. Oxford Economics thinks investors are too bullish now because they were too panicky in April and May, when Trump imposed dramatically high tariffs that he has since lowered. Trump’s “Liberation Day” tariff announcements on April 2 triggered a big stock sell-off, which in turn prompted Trump to back down and pause some of those tariffs. The average tariff rate jumped from 2.5% before Trump took office to about 28% after “Liberation Day.” Recent changes to Trump’s tariff regime brought the average import tax to as low as 14%, then up to about 18%, where it is today.
So, the average import tax is now lower than it was in April and May — but still considerably higher than it’s been for the past 90 years. That will still sting. “Margin resilience [is] unlikely to last,” Oxford economists noted in an Aug. 5 analysis. “We think margin pressures will build throughout the second half of the year as the effective tariff rate continues to move higher, businesses deplete front-run inventories, and domestic demand softens.”
Bloomberg recently reported that several Wall Street money managers, including Morgan Stanley, Evercore ISI, and Deutsche Bank, are warning clients that a stock pullback of 10% to 15% could be on the horizon. Trump’s trade wars are the biggest concern, as the rising toll of import taxes further damages profits, raises prices, reins in spending, and depresses growth.
The sharp slowdown in job growth during the past three months may be a harbinger of worse to come. The average pace of job gains from May through July was just 35,000, an 80% decline from the 2024 pace. Trump got so angry over those numbers that he fired the government economist who oversees the employment report. But the real problem is Trump’s own policies, and he can’t fire every CEO who needs to explain how tariffs are harming profits.
Rick Newman is a senior columnist for Yahoo Finance. Follow him on Bluesky and X: @rickjnewman.
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