Second-quarter earnings should provide insight into tariff impact - Goldman Sachs

Investing.com - The upcoming second-quarter earnings season should provide investors with key insights into how firms are adjusting to U.S. President Donald Trump’s sweeping tariff agenda, according to analysts at Goldman Sachs.

Major U.S. companies are gearing up to reveal their latest quarterly returns, with the first big day of the reporting period due to come next month. Between July 11 and August 1, 73% of the S&P 500 companies will unveil their earnings.

Economists have suggested that Trump’s elevated levies could refuel waning inflationary pressures and weigh on wider economic activity. Yet recent data have indicated that, while consumer sentiment and spending has weakened in recent months, inflation has remained broadly muted and the labor market has been resilient.

Still, some strategists have predicted that the tariffs could have a delayed effect and begin to show up in economic figures later this year.

Some uncertainty, meanwhile, surrounds Trump’s tariff policies. Notably, he has not said whether he will extend a pause to his punishing "reciprocal" duties on most countries that is due to expire early next month -- although White House officials have said such an extension is an option.

Even discarding the reciprocal levies, the effective U.S. tariff rate has risen since Trump’s inauguration in January to stand at 13%, the Goldman analysts said, adding that their economists believe it will eventually be increased by additional four percentage points to 17%.

Should companies be forced to swallow these higher costs, it would represent a downside risk to margins, while consumers would have absorb 70% of the direct expenses, the brokerage flagged. However, they highlighted that some business surveys shown lower pass-through costs, and the May inflaiton report showed a "limited tariff imprint."

Elsewhere, elevated tariffs have yet to weigh on sales forecasts or corporate spending expectations at the aggregate index level, the analysts said.

Against this backdrop, they forecast that year-over-year earnings per share growth across companies in the benchmark S&P 500 will "decelerate to just 4% in the second quarter" down from 12% in the prior three months.

For the full year, Goldman projected that S&P 500 per-share income will grow by 7%, but said there are "risks" around its margin forecast for 35-basis point expansion to 11.9%.

"Consensus estimates show margins contracting sequentially, which explains the slowdown in corporate profit growth. We expect the S&P 500 in aggregate will beat this low bar," they wrote.