Corporate America is now under immense pressure to deliver robust third quarter earnings, tasked with justifying the nearly 32 percent gain the S&P 500 has achieved since its low point in April 2025.
This challenge is amplified by soaring global trade tensions and lingering anxieties that a tech-fuelled market bubble may be percolating beneath the surface.
Wall Street’s immediate concerns are focused on two crucial and interwoven factors: the impact of elevated US tariffs on companies profitability and the long-term durability of artificial intelligence (AI) spending.
Tariff Woes Resurface
Worries over global trade were firmly back in the spotlight after US President Donald Trump announced that he would impose an additional 100 percent tariff on China, alongside new export controls on “any and all critical software” starting 1 November.
In a social media post, President Trump alleged that China was “becoming very hostile” by imposing fresh export controls on rare earth minerals, which are vital components in modern electronics and advanced AI hardware.
“One of the Policies that we are calculating at this moment is a massive increase of Tariffs on Chinese products coming into the United States of America,” Trump said, adding that he was considering “many other countermeasures.”
The retaliatory tariff threats sent market heavyweights tumbling on Friday. The Dow Jones Industrial Average closed down 1.90 percent, the S&P 500 finished 2.71 percent lower, and the Nasdaq Composite lost 3.56 percent. Companies integral to the AI boom, such as Nvidia, Tesla, Amazon.com, and Advanced Micro Devices, all experienced drops exceeding 2 percent after the bell.
The conviction is growing among market participants that months of elevated tariffs are already taking a discernible toll that will inevitably be reflected in third quarter earnings reports.
AI Spending Imperative
Despite the uncertainty surrounding global trade, companies have continued to pump substantial capital into AI investments, with a sunny outlook for this spending helping to boost tech stocks around the world. The S&P 500 is up 11 percent year-to-date, fuelled in part by this excitement over AI.
However, investors are increasingly eyeing concrete evidence that this significant spending is delivering material returns.
Furthermore, the impact of tariffs and export controls is particularly acute for the AI sector.
Quarterly Earnings in Focus
With the backdrop of renewed trade conflict and the need to justify high valuations, the focus now turns to the upcoming earnings cycle. JPMorgan Chase & Co. and other major US banks are scheduled to kick off the third quarter reporting next week, whilst the spotlight will fall on the technology-focused megacaps later this month. Analysts are currently forecasting profit growth of 7.4 percent for US stocks in the third quarter, a figure that has risen since mid-August, according to Bloomberg.
