The S&P 500 just notched its 13th all-time high this year, propelled by a confluence of strong earnings, resilient labor data, and early signs of economic reacceleration. Weekly initial jobless claims have declined for seven straight weeks, and the U.S. composite PMI is quietly trending higher—evidence that the real economy is picking up steam.
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Tariffs, once assumed to be a market breaker, have proven less punishing this time around. While the headline tariff rate now hovers near 17%, the effective rate is closer to 8%, thanks to better cost-sharing across global supply chains. Unlike the 2018–19 cycle—when U.S. consumers absorbed up to 90% of tariff costs—this round has seen domestic companies and foreign exporters shoulder nearly two-thirds of the burden. That’s possible because corporate margins are now 60% higher than during the last trade war, giving firms room to absorb shocks without immediately passing on costs. The result: less inflation, steadier sentiment, and a market less prone to panic.
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After a wave of pre-emptive guidance cuts in Q1, companies recalibrated. Q2 earnings have surprised to the upside—with nearly 79% of S&P 500 companies beating estimates, and average earnings surprises running 6–7%. From GM absorbing $1.1 billion in tariffs and still beating forecasts, to J&J slashing tariff exposure and raising guidance, the corporate response has been swift and strategic. Even currency trends are cooperating, with a weaker dollar boosting multinational earnings via favorable FX translation.
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The deeper story may be structural. Generative AI is no longer just hype—it’s showing up in profit margins and capital allocation. Microsoft now uses AI to write 30% of internal code, saving $500 million a year. IBM credits AI with a 200bps margin expansion, while J.P. Morgan sees a $1–1.5B annual economic impact from internal AI deployment. The “One Big Beautiful Bill Act” is supercharging this momentum, unlocking a projected $360 billion in hyperscaler capex this year alone—funneling into infrastructure, R&D, and domestic buildouts.
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The result is a market narrative that’s materially different from 2018 or even 2022. Companies are stronger, margins are wider, AI is lifting productivity, and the tariff shock—while real—isn’t existential. With EPS revisions hitting their highest level in over three years, consumer sentiment relatively stable, and corporate buybacks rising double digits, investors are leaning into strength. Risks remain, but resilience is winning.