Tariffs and high interest rates are like the sword of Damocles. US stock investors are no longer concerned about company performance.

Notice that, driven by strong economic growth, American companies have had one of the best earnings seasons in three years. However, this is not enough to offset concerns about tariffs and high interest rates. Data shows that three-quarters of companies comprising the S&P 500 index have reported earnings, with earnings per share expected to increase by 12.5%, compared to a pre-season forecast of 7.3%. This far exceeds the average growth rate of 5.5% since the first quarter of 2022. But this does not mean that investors are happy with these performances. Data shows that stocks that beat expectations on earnings day still underperformed the S&P 500 index by 0.1% - one of the worst reactions in four years. Companies that did not meet expectations were also punished, with their stock prices falling an average of 3.2% below the benchmark index. American corporate profits far exceed the three-year average Before the earnings season began, the US stock market had already experienced volatility, with factors such as high interest rates, tariff policies, and overvaluation of tech stocks hanging over investors like the sword of Damocles. Gina Martin Adams, chief stock strategist at BI, said, "The S&P 500 index has easily met earnings targets twice, but lower beat rates and high investor expectations for the dominant seven giants have kept stock prices hovering near historical highs, posing challenges." In fact, some companies among the "Big Seven Tech Giants," including Alphabet (GOOGL.US), Microsoft Corporation (MSFT.US), and Amazon.com, Inc. (AMZN.US), did not perform as well as expected. Stock prices of companies like chip design firm Arm Holdings Plc (ARM.US) and industrial company Honeywell International Inc. also fell, as lukewarm prospects overshadowed better-than-expected earnings. Sophie Huynh, senior cross-asset strategist at BNP Paribas Asset Management, said analysts had lowered expectations before the season, which partly explains why the beat rates appear so "healthy." "We found that defensive sectors outperformed cyclical sectors in terms of sales exceeding expectations, and the impact of lower-than-expected earnings per share on stock prices was significant," she said. "In addition, earnings guidance was also somewhat weak." Solid reports from retail-oriented companies like Yum! Brands, Inc. (YUM.US) and Ralph Lauren (RL.US) eased concerns about consumer spending. Walt Disney Company exceeded earnings expectations, and unexpected demand for Pfizer Inc.'s COVID-19 vaccine helped the company beat quarterly expectations. As concerns about soaring inflation later this year intensify, attention is now shifting to the remainder of 2025 and companies' ability to protect profit margins. BI data shows that approximately 44% of S&P 500 companies exceeded operating profit margins this quarter, the smallest proportion since the end of 2022. "While this earnings season is progressing smoothly, there is now a heavy reliance on large companies to protect profits," said Florian Ielpo, head of macro research at Lombard Odier Investment Managers. "This approach poses risks for future earnings seasons."