Earnings Watch: Q2 results will offer the ‘first real test into the ramifications of tariffs,’ one strategist says. JPMorgan and Netflix lead them off.
JPMorgan reports quarterly results on Tuesday.
The full Trump tariff nightmare that had investors jumping ship in April — that is, fears of price spikes, barren store shelves, mangled shipping lanes and a recession — hasn’t yet come true. And even amid the U.S.’s dizzying on-again, off-again approach to global trade talks, markets have relaxed.
But this week, as big banks like JPMorgan Chase & Co. and streaming giant Netflix Inc. lead investors deeper into second-quarter earnings, their results and forecasts will offer the first test of investors’ newfound nonchalance, as more executives weigh in on the economy.
Dave Wagner, head of equity and portfolio manager at Aptus Capital Advisors, said the results will also offer the “first real test into the ramifications of tariffs that obviously weren’t included in the first quarter.”
The results will come after analysts cut their profit estimates a bit more than normal over the past three months, as more companies expressed caution on “uncertainty” surrounding global trade. Margins, another big focus for Wall Street, are expected to slip from the prior quarter.
Wall Street expects profit growth per share of 4.8% for S&P 500 companies overall in the second quarter, according to FactSet. That would represent the lowest level of growth since the fourth quarter of 2023.
Net profit margins are estimated to land at 12.2%. That would be down from the 12.7% that companies put up in the first quarter, but the same as the level from a year ago. However, it’s still above the five-year average of 11.8%.
Companies like Walmart Inc. and Mattel Inc. have said tariffs would lead to price increases, although other retailers have noted they would take a delicate approach to raising them. Ford Motor Co. yanked its full-year outlook, and said it expects tariffs tocost it $1.5 billionthis year. Goldman Sachs, in a report this month,saidit expects companies to pass 70% of the direct costs of tariffs to customers via price increases.
Still, recent inflation data has been tame. However, while the U.S. economy added jobs last month, new employment has become harder to find. Analysts also say it could take time for the hit from tariffs to show up in prices at retailers.
“A lot of the products they were selling in Q1 and even into Q2 remained tariff-free products,” said Matt Pavich, senior director of strategy and innovation at Revionics, a pricing-analytics firm. “These were products they had prepurchased, that they had planned for long in advance.”
Through the spring and summer, Pavich added, the harshest of Trump’s tariffs were on pause, perhaps sparing consumers from bigger price increases.
“A lot of retailers are waiting, because of the uncertainty, to make a major strategic move,” he said.
Brian Mulberry, client portfolio manager at Zacks, said any measurable effect from tariffs on prices might not show up until the first quarter of next year. But as the Federal Reserve holds off on further easing borrowing costs, a larger divide could soon emerge between companies with solid balance sheets and those wrangling with higher interest rates.
“This is a pressure that has been persistent in this market for a long period of time,” Mulberry said. “And if there’s going to be no relief to that headwind, then I would expect more bad things to happen because of interest rates than tariffs.”
The S&P 500 index is up around 6% so far this year — having fully recovered its losses from April, when President Donald Trump escalated his attacks on the global trade order with expansive new tariffs. And despite a 90-day pause on the worst of those import taxes, a deadline extension to Aug. 1, legal challenges, and new or threatened duties on specific products, Wagner said the U.S.’s recent trade deals with the U.K. and Vietnam offered some clarity for investors.
“It’s almost like the market has been given the bookends of, likely, where a lot of the countries are going to be falling in now,” Wagner said. “So you have more information and direction out of D.C.”
Along with JPMorgan, Wells Fargo & Co., Citigroup Inc., Bank of America Corp., Morgan Stanley and Goldman Sachs Group Inc. also report during the week. Taken together, results from those banks will offer a bird’s-eye view of the economy and a more granular look at how lending, trading and deal-making have held up after April’s market volatility and amid elevated interest rates.
The banks will report after they cleared another round of annual stress tests last month. Mulberry said he’d also be watching for any pressure from executives to loosen up regulatory restrictions.
BofA analysts, in a research note last week, said there might not be a whole lot to jump-start bank stocks in the second half of the year — pointing out that investors had, for now, already largely priced in hopes for deregulation and optimism that the worst the market’s tariff fears were behind them. But they added that things have changed since the 2008 financial crisis, after which shareholders got rewarded less as stricter capital-cushion requirements took hold.
“The group is likely to be viewed as a viable investment alternative on secular growth themes,” the analysts said.
Meanwhile, the “Magnificent Seven” Big Tech companies also report results in the weeks ahead. The focus, again, will be on the monumental spending on artificial intelligence and who’s investing in the technology the most wisely — despite worries about the economy, AI’s current usefulness, and the AI-slop avalanche overtaking the Internet.
The fight for talent could also loom larger, as Meta Platforms Inc. reportedly shells out millions for engineers. So could questions about whether Apple Inc. cancatch up in the AI race, and ongoing concerns around Tesla Inc. While the electric-vehicle maker’s second-quarter deliveriesstaved off investors’ worst fears, worries endure over whether Chief Executive Elon Musk’s ventures into politics are too great a distraction.
“AI obviously has a lot of momentum as a theme, but we want to know who’s going to be doing it in a profitable way,” Mulberry said. “We’re mindful that AOL was the largest internet company in the world 20 years ago — and they simply thought that broadband was a niche business and dial-up was going to be fine forever.”
This week in earnings
Forty-two S&P 500 companies, including six Dow Jones Industrial Average companies, report results in the week ahead, according to FactSet.
Other financial firms reporting results include BlackRock Inc., Bank of New York Mellon Corp. and PNC Financial Services Group Inc.
Results are also due from United Airlines Holdings Inc., after rival Delta Air Lines Inc. last week reported better-than-expected earnings— helping to restore some investor faith in the economy and travel demand after warnings of stalling growth in April.
Johnson & Johnson, PepsiCo Inc., grocery chain Albertsons Cos. Inc. and trucking and logistics provider J.B. Hunt Transport Services Inc. will also report results.
The call to put on your calendar
JPMorgan: America’s largest bank reports second-quarter results on Tuesday, which means it’s Jamie Dimon time — the earnings season’s earliest, and perhaps most closely watched, take on the broader economy from the JPMorgan CEO.
The number to watch
Netflix’s stock price: Netflix might not have to worry so much about tariffs, and Wedbush analysts, in a note this month, said the company’s lead in the streaming wars is “virtually insurmountable.” But as the company prepares to report quarterly results on Thursday, its apparent place at the top hasn’t made everyone happy.
Even amid the broader entertainment industry’s pullback, Netflix has raised some prices and pushed more ads — things Wall Street likes — while moving deeper into live broadcasts, something traditional TV hasn’t liked. The Wall Street Journal reported in April that Netflix wants to double its sales by 2030 and become a $1 trillion company. But other analysts have worried that the streaming giant might have only so much upside left in its share price, which has already run some 40% higher so far this year.
“We just think the company may need some time to execute against expectations before there can be another leg up for the shares,” Seaport Research analyst David Joyce wrote in a recent note to clients.