Health Is Wealth When Tariffs Are Denting Profit Forecasts
3 min
President Donald Trump’s imposition of tariffs on trading partners have moved analysts to reduce forecasts for U.S. companies. Many stocks look vulnerable to declines, while some seem relatively immune.
Since the start of the year, analysts’ expectations for aggregate first-quarter sales of S&P 500 component companies have dropped about 0.4%, according to FactSet. The hundreds of billions of dollars worth of imports from China, Mexico, and Canada the Trump administration is placing tariffs on, including metals and basic materials for retail and food sellers, will raise costs for U.S. companies. That will force them to lift prices, reducing the number of goods and services they’ll sell to consumers and businesses.
This outlook has pressured first-quarter earnings estimates by 3.8%. Companies will cut back on marketing and perhaps labour, but many have substantial fixed expenses that can’t easily be reduced, such as depreciation and interest to lenders. Profit margins will drop in the face of lower revenue, thus weighing on profit estimates. The estimates dropped mildly in January, and then picked up steam in February, just after the initial tariff announcements.
“We are starting to see the first instances of analysts cutting numbers on tariff impacts,” writes Citi strategist Scott Chronert.
The reductions aren’t concentrated in one sector; they’re widespread, a concrete indication that the downward revisions are partly related to tariffs, which affect many sectors. The percentage of all analyst earnings-estimate revisions in March for S&P 500 companies that have been downward this year has been 60.1%, according to Citi, worse than the historical average of 53.5% for March.
The consumer-discretionary sector has seen just over 62% of March revisions to be lower, almost 10 percentage points worse than the historical average. The aggregate first-quarter earnings expectation for all consumer-discretionary companies in the S&P 500 has dropped 11% since the start of the year.
That could hurt the stocks going forward, even though the Consumer Discretionary Select Sector SPDR exchange-traded fund has already dropped 11% for the year. The declines have been led by Tesla and Amazon.com , which account for trillions of dollars of market value and comprise a large portion of the fund. The average name in the fund is down about 4% this year, so there could easily be more downside.
That’s especially true because another slew of downward earnings revisions look likely. Analysts have barely changed their full-year 2025 sales projections for the consumer-discretionary sector, and have lowered full-year earnings by only 2%, even though they’ve more dramatically reduced first-quarter forecasts. The current expectation calls for a sharp increase in quarterly sales and earnings from the first quarter through the rest of the year, but that’s unrealistic, assuming tariffs remain in place for the rest of the year.
“The relative estimate achievability of the consumer discretionary earnings are below average,” Trivariate Research’s Adam Parker wrote in a report.
That makes these stocks look still too expensive—and vulnerable to declines. The consumer-discretionary ETF trades at 21.2 times expected earnings for this year, but if those expectations tumble as much as they have for the first quarter, then the fund’s current price/earnings multiple looks closer to 25 times. That’s too high, given that it’s where the multiple was before markets began reflecting ongoing risk to earnings from tariffs and any continued economic consequences. So, another drop in earnings estimates would drag these consumer stocks down even further.
Industrials are in a similar position. Many of them make equipment and machines that would become more costly to import. The sector has seen about two thirds of March earnings revisions move downward, about 13 percentage points worse that the historical average. Analysts have lowered first-quarter-earnings estimates by 6%, but only 3% for the full year, suggesting that more tariff-related downward revisions are likely for the rest of the year.
That would weigh on the stocks. The Industrial Select Sector SPDR ETF is about flat for the year but would look more expensive than it is today if earnings estimates drop more. The stocks face a high probability of downside from here.
The stocks to own are the “defensive” ones, those that are unlikely to see much tariff-related earnings impact, namely healthcare. Demand for drugs and insurance is much sturdier versus less essential goods and services when consumers have less money to spend. The Health Care Select Sector SPDR ETF has produced a 6% gain this year.
That’s supported by earnings trends that are just fine. First-quarter earnings estimates have even ticked slightly higher this year. These stocks should remain relatively strong as long as analysts continue to forecast stable, albeit mild, sales and earnings growth for the coming few years.
“This leads us to recommend healthcare and disfavour consumer discretionary,” Parker writes.
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Nvidia’s earnings will test Wall Street’s confidence in the AI boom.
3 min
Chip makers are fighting to assure investors that the artificial-intelligence boom is racing forward. Wall Street might not believe it until Nvidia’s NVDA -0.98%decrease; down pointing triangle Jensen Huang says so.
When Huang steps up to the mic for his company’s earnings call Wednesday, he will have the world’s attention. What he says about Nvidia’s present will preview the future of AI, dictate the path forward for a tech-crazed stock market and influence an American economy increasingly tethered to hopes that the boom won’t go bust.
The $5 trillion chip maker has provided the key building blocks for AI since the launch of ChatGPT in 2022 set off a race for dominance among OpenAI, Anthropic and established Silicon Valley giants. Now, as Nvidia backstops sprawling data-center projects and an exotic money pipeline to boost chip demand, the company’s influence is arguably bigger than ever.
But there are signs of trouble ahead. Political pushback to AI is growing. A bond selloff propelled borrowing costs to their highest levels in years. The hyperscalers that include some of Nvidia’s key customers—once cash-printing machines—are relying more on debt. OpenAI recently told investors its revenue rose by a tepid 18% in the second quarter while its losses deepened.
Nvidia is increasingly stepping in to shore up potential weak points across the market. Earlier this month, the company teamed up with six of Wall Street’s biggest firms on a $500 billion AI-financing plan, pledging to backstop lending to customers that can’t afford its chips otherwise. The chip maker last week also took a stake in Cloverleaf Infrastructure, which arranges power for data centers, and struck a $6 billion deal with startup Poolside aimed at developing a powerful open-weight AI model.
After watching shares in other chip makers and the so-called Magnificent Seven tech companies swing wildly in recent months, Wall Street is hoping Nvidia can beat expectations—again. The countdown is on.
“It’s kind of becoming more and more like the World Cup final than the Super Bowl at this point,” said Brian Mulberry, chief market strategist at Zacks Investment Management. “It’s just gotten to be that big.”
The company has smashed analysts’ earnings estimates for each of the 14 quarters since the AI boom kicked into high gear. Nvidia posted 210% annual growth in net income in its last three-month period, according to FactSet, making Wall Street’s 126% projection look pedestrian.
Expectations for a blowout second quarter have risen rapidly over the course of this year. All Nvidia will have to do to beat this target: outrun 95% annual earnings growth to more than $51.5 billion. Analysts project the chip maker will report record sales of $92 billion for the period, up from a forecast of $78 billion at the start of this year.
In July, big-tech earnings sparked volatility. Concerns about runaway capital spending spread across the sector after Alphabet’s and Tesla’s results, driving a $890 billion wipeout that contributed to the unwind of hedge fund Situational Awareness. Microsoft posted the largest one-day gain in market capitalization by any company, ever, after a quarter proving that it could still show investors the money. SpaceX rocketed higher after a record-breaking initial public offering, only to see $1 trillion in value evaporate.
Surging memory prices and borrowing costs have fueled fears that those and other companies will be unable to keep plowing more money into supplies including Nvidia chips. Shaia Hosseinzadeh, founder of OnyxPoint Global Management, has recently bought dips in AI-infrastructure stocks when Wall Street has strained to absorb massive debt issued by Silicon Valley.
“The macro data is really quite robust,” he said. “Of course, there’s a level at which everything breaks.”
Investors have kept pumping money into the AI trade despite concerns around chip consumers—and to the benefit of chip producers. That is why Nvidia’s outlook for semiconductor demand could send ripples through counterparts such as Micron Technology and Sandisk, developers of the data centers in which their chips reside, and a supply chain of power producers, contractors and other specialists that underpin the globe-spanning AI build-out.
“We joke internally that we’re all Nvidia analysts now,” said David Lefkowitz, head of U.S. equities at UBS Global Wealth Management.
The irony is that investors have tended to sell Nvidia stock immediately after blockbuster earnings, with shares falling each trading session after its four past quarterly reports. Some are betting that will be the case this time around, too.
The options market is pricing in a 5.3% swing, higher or lower, in Nvidia shares during the session following earnings, according to Option Research & Technology Services. That is higher than the 4.8% average move in Nvidia’s stock over the last 12 months after the company reports quarterly results.
In recent days, some of the most actively traded Nvidia options have been put contracts tied to the stock falling from its Friday value of $214.75 to $205 and $210 apiece, according to Cboe Global Markets data. Put options give the right to sell a stock by a set price and typically represent a bearish wager.
Many analysts remain optimistic. Frank Lee, global head of tech hardware and semiconductor research at HSBC Global Investment Research, recently raised his price target for Nvidia shares to $360 from $325, citing, among other things, Nvidia’s strategic partnerships with suppliers and its role as a top contributor to open-source AI.
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