Is Wall Street still too bearish on tariff impact?

"LIBERATION DAY" feels like a long time ago. Since President Donald Trump shocked markets with sky-high new tariff rates and a hasty U-turn, the S&P 500 Index has rebounded to all-time highs, and there's a pervasive sentiment that Wall Street is recklessly ignoring economic risks that haven't really gone away.

- Bloomberg

Earnings season may, however, provide further fuel for the rally.

Earnings estimates for the more trade-sensitive companies still haven't rebounded from the very serious hit they took after April 2. Maybe (just maybe) we'll start to see that happen as companies announce their quarterly results. Though tariffs are no joke for profit margins, many large companies are finding ways to mitigate the impact, and there's no clear sign that the levies will precipitate the downturn many feared.

Consider consumer discretionary stocks. Excluding special cases Amazon.com and Tesla, sellside analysts are projecting a 6.2% contraction in S&P 500 discretionary earnings this calendar year. The outlook collapsed after Liberation Day and has remained gloomy. The speed and scope of the downward earnings revisions for the sector since early April were the worst in 20 years outside of 2020 (the start of the Covid-19 pandemic) and 2008 (the onset of the financial crisis).