Chart in Focus: Earnings upgrades fueled the recent US equity market rally 

Many market observers cautioned that the trade war precipitated by US President Donald Trump’s tariffs announcement in April would mark a profound turning point for globalization and US exceptionalism. Since the 2000s, company supply chains and consumer markets have become increasingly globally integrated and in the wake of the tariff announcements, investors braced for a sharp slowdown in international trade flows, overall economic growth, and corporate earnings. As US credibility wavered, global equities outperformed the US market in April, especially as a number of regions announced promising fiscal measures intended to boost growth.

However, such fears have not fully manifested yet. As the chart below illustrates, US company earnings are now being revised upward at the highest rate since the COVID pandemic while European earnings continue to disappoint despite optimism around fiscal stimulus. 

It remains too soon to fully assess the likely longer-term investment implications of the tariffs, but investors may have been too bearish too quickly about the potential impact on company earnings, a dynamic that may now be moderating.