The biggest economic dent from tariffs could come from the general cost of uncertainty. The lack of a clear, long-term U.S. economic policy has led CEOs to eliminate projects, cut costs and generally delay spending. Importantly, the impact from this reduced spending has yet to manifest itself in the economic data. Trade deals would be helpful, but they remain elusive.
We’re still a month away from Q2-earnings season, but companies are already revising their estimates lower. Consensus expectations for S&P 500 companies suggest 4.9% year-over-year earnings growth in Q2. That’s down from forecasts of 9.3% growth as of March 31. Lower expectations create an easier bar to clear, but since stock prices have not fallen with earnings estimates, that means valuations have risen. The forward Price-to-Earnings (P/E) ratio of the S&P 500 is approaching 22. That’s well above the 10-year average of 18.4.
U.S. Gross Domestic Product (GDP) fell by 0.2% in the first three months of 2025 compared to a year earlier. If GDP contracts again in Q2, it will signal an economic recession. The market is largely ignoring this possibility, which seems strange considering the impact from tariffs and lower corporate spending will likely be greater in April, May and June than it was in the prior quarter. A recession is by no means a worst-case scenario, especially if short-lived, but it would lead asset prices to recalibrate.
One of the only 1%-down days since mid-April occurred June 13 after Israel bombed nuclear facilities and military bases in Iran. The market pessimism lasted exactly one day as equities immediately bounced back despite Iran’s retaliation. Military conflict in the Middle East is nothing new, but further destabilization in the region could present larger challenges to global trade.
Ben Marks is chief investment officer at Marks Group Wealth Management in Minnetonka. He can be reached at ben.marks@marksgroup.com. Brett Angel is a senior wealth adviser at the firm.
