Behind the repeated record highs of US stocks: profit expectations are rising at the fastest pace in four years.

No wonder the S&P 500 index continues to hit new highs: analysts are rapidly increasing their earnings forecasts for this quarter at the fastest pace in nearly four years. Citigroup's index tracking the ratio of upward revisions to downward revisions in earnings expectations for US stocks has reached its highest level since December 2021. Companies that have recently issued their own guidance are also showing the same strong trend. Data from Bloomberg Intelligence shows that a forward-looking indicator that compares corporate guidance with Wall Street consensus expectations is hovering at the second highest level in nearly four years. This more optimistic outlook contrasts sharply with the beginning of the year when concerns about President Donald Trump's trade policy peaked, leading to a decade-low in corporate guidance indicators. However, US companies may still need a few months to begin feeling the comprehensive impact of Trump's trade war on their supply chains and profit margins. Yung-Yu Ma, Chief Investment Strategist at PNC Asset Management Group, said, "A few months ago, analysts lowered their earnings forecasts due to tariff issues. Now, people are more convinced that tariffs will not have a destructive impact on the economy as previously feared. But the issue is that everyone is waiting to see the impact of the tariff policy in the coming months." The momentum of upward earnings forecasts for US companies has reached its peak since 2021. This may explain why full-year expectations have not fully recovered to pre-levels. Analysts' earnings forecasts show that the full-year growth rate for 2025 is expected to be 9.2%, down from the near 13% at the beginning of the year. Data compiled by Bloomberg Intelligence shows that Wall Street predicts S&P 500 index component companies to have earnings per share of around $269 in 2025, lower than the initial forecast of $273 and also lower than the forecast of $279 a year ago. Moreover, the trend of upward earnings forecasts cannot be guaranteed to continue. Nick Giacoumakis, President of NEIRG Wealth Management, said that sell-side analysts and companies may lower their forecasts in the coming months. A similar situation occurred during Trump's first term: despite the escalation of the trade dispute in early 2018, the impact on corporate profits did not show up until about a year later. Giacoumakis said that during this period, the US economy benefited from large-scale corporate tax cuts. This time, the latest large-scale tax cut bill advocated by Trump has also eased the economic concerns triggered by his trade policy. However, Bloomberg Intelligence believes that the tax cuts for S&P 500 index component companies under this bill may be only about half of those in the 2017 bill. David Kostin of Goldman Sachs Group, Inc. said last Friday that he expects the strong trend of recent analyst earnings revisions to "weaken in the future," adding that "the profit margin expansion in the general expectations seems unrealistic." Wendy Soong, Senior Analyst at Bloomberg Intelligence, said that analysts will not adjust their forecasts for the second half of the year until more companies release earnings forecasts for the coming quarters. Despite this, the trend of the current earnings season is undoubtedly strong. Only 25% of S&P 500 index component companies have issued quarterly performance guidance, with such companies typically consisting of technology and non-essential consumer goods companies. As of now, about 90 companies have announced their third-quarter earnings expectations, and Bloomberg Intelligence believes that the momentum shown in these guidance is the strongest since the last three months of 2024. Among the 64 companies that have disclosed their third-quarter revenue guidance, the growth momentum is the strongest since the second quarter of 2021. This week, US large retailers such as Walmart Inc. (WMT.US) and Target Corporation (TGT.US) will release their earnings reports, and traders will closely monitor the performance of US consumers at the beginning of Trump's tariff policy implementation. In recent years, companies have shown strong resilience in their performance, even in the face of various challenges such as soaring inflation and the highest interest rates in decades. Today, many investors hope that Trump can reduce or eliminate tariffs before they squeeze profits. However, although US companies are confident in their ability to withstand the trade storm, strategists at Goldman Sachs Group, Inc. led by Guillaume Jaisson, said that in the second half of 2025, "cost pressures may increase, leading to downside risks in actual income growth." Giacoumakis of NEIRG said, "Most companies are still depleting inventory hoarded before the tariffs took effect, and executives were not clear at the time about how global trade would change. Therefore, we will need a few more quarters to better understand the impact on companies."