Even after four months of dealing with Trump’s tariffs, there’s still a major divide on the current and future impact of that towards businesses, inflation, and the US economy as a whole. Before Friday’s jobs data, Wall Street was flying high as big tech continues to lead the way and show their resilience in mitigating the impact from tariffs.
However, is that a fair assumption that every other business in the US are also facing similar circumstances? Well, not quite.
With roughly 65% of companies in the S&P 500 index reporting Q2 earnings already, Société Générale notes that 52% of those firms have reported falling profit margins. As a reminder, sales do not equate to profits. And so even with many firms reporting higher sales during the quarter, their bottom line was actually softer amid tighter margins.
And this discrepancy is even starker if you draw it up against the top 10 companies in terms of weightage for the index.
As seen above, the rest of the companies in the S&P 500 are showing middling performance in terms of profitability this year. Meanwhile, the big boys are the ones pulling everything up.
For some context, the top 10 companies are Nvidia, Microsoft, Apple, Amazon, Meta, Broadcom, Alphabet (GOOG and GOOGL), Tesla, and Berkshire Hathaway.
And we’ve already seen how the big tech shares have reported strong earnings beat in the past few weeks. So, you can sort of get the point.
If you’re not in big tech, it is clear that tariffs are starting to bite. Just look at Ford earnings last week, where the automaker reported that adjusted EBIT was impacted by $800 million in net tariff exposure in Q2. Meanwhile, GM also made a note that tariff-related costs chipped away at Q2 profit by $1.1 billion. And Stellantis also said that tariffs added almost $350 million to their costs.
As long as you’re in the manufacturing side, tariffs are definitely biting. And the thing is, these companies don’t appear yet to be passing on the bulk of the costs to consumers. So, that’s another point to be wary about and something to discuss in a separate discourse.
But circling back to how the stock market is shaping up this year, it is extremely clear that we’re in the AI market boom. That’s where the party is at and that is what will have to carry this ever growing house of cards.
This article was written by Justin Low at investinglive.com.