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Market Focus on Corporate Profits, Ignoring Signs of Economic Slowdown
Since President Trump initiated the first round of tariffs on April 2, economists have downgraded the U.S. GDP growth forecast for the year from 2.3% to 1.5%. However, over the past four months, the S&P 500 has risen by more than 28%, indicating that investors have not been swayed by a weak labor market, slowing consumption, and inflationary pressures in manufacturing and services.
J.P. Morgan points out that traders are focused on the resilience of corporate earnings and the potential for future economic recovery, which is the main reason the market is ignoring macroeconomic weakness.
Second Catalyst: Strong Earnings Season Performance
Currently, over 80% of companies in the S&P 500 have released their Q2 earnings reports, with 82% exceeding earnings expectations and 79% surpassing revenue expectations, marking the best performance since Q2 2021.
Wall Street initially estimated annual profit growth of less than 5%, but now expects the index to reach an 11% increase, sustaining the bullish market outlook. J.P. Morgan’s analysis indicates that the market is reassessing the winners and losers under the “Trump trade war” and adjusting valuations accordingly.
Large Enterprises Are Better Able to Mitigate Tariff Risks
J.P. Morgan emphasizes that large multinational corporations based in the U.S. have a distinct advantage in dealing with tariffs, not only obtaining exemptions but also converting policies into positive outcomes. For example:
- Trump threatened to impose a 100% tariff on imported semiconductors unless companies relocated their production capacity back to the U.S.;
- Apple’s products were excluded from the latest list of Indian tariffs on goods, and the company announced an additional $100 billion investment in U.S. manufacturing, resulting in a nearly 9% rise in its stock price this week.
Additionally, according to the provisions of the “Big and Beautiful” tax bill, companies can apply 100% accelerated depreciation when acquiring qualified capital assets, allowing for full depreciation in the year the asset is put into service rather than spreading it over a useful life. This measure can immediately reduce taxable income and alleviate current tax burdens. At the same time, the bill also allows companies to directly expense domestic R&D expenditures in the year they occur, potentially increasing the free cash flow of some companies by over 30%.
Analyses suggest that for capital-intensive industries and companies with substantial R&D investments, these two incentives will significantly enhance post-tax disposable cash, providing more flexibility for expansion, investment, and stock buybacks, and may also serve as a crucial incentive for companies to increase their commitments to U.S. manufacturing.
Potential Benefits for Cryptocurrency Assets
J.P. Morgan’s bullish stance on U.S. stocks may also have a positive impact on the cryptocurrency market, as both often move in tandem. Recently, the cryptocurrency market has received several favorable developments, including the Trump administration appointing pro-crypto officials to key positions and the U.S. Securities and Exchange Commission (SEC) ruling that under certain conditions, liquid staking does not fall under the purview of securities law, leading the market to be optimistic about the prospects of an Ethereum spot ETF’s approval to include staking features.
