The Q2 earnings reporting cycle is currently underway, with its peak expected to arrive in mid-July starting with JPMorgan's report. The main focus will be on the tangible effects of trade relations and tariffs, as significant tariffs implemented in April and June could have considerable impacts. There's uncertainty about whether the market has priced these in or is anticipating a worst-case scenario.

Analysts have been lowering their estimates for S&P 500 earnings growth, now expecting it to be in the mid-single digits instead of mid-teens. Despite this, it is anticipated that the index will surpass the mid-June consensus by a few hundred basis points, with potential growth reaching 8% to 10%. The energy sector is projected to contract significantly due to oil prices, impacting capital returns.

Growth in the Q2 cycle is expected to be driven by the Communications and Information Technologies sectors. Communications, particularly Warner Bros. Discovery, is predicted to show a smaller loss than before. Meanwhile, Information Technology, bolstered by AI, is set to grow, with companies like Microsoft, NVIDIA, and Apple expected to report strong growth figures. NVIDIA might even exceed a 50% revenue increase.

The biggest risk lies in the guidance for future quarters. With tariffs affecting many sectors, the guidance might lean negative, potentially deteriorating the outlook for Q3, Q4, and 2026. However, trade relations are gradually improving, which could stabilize the economy and be a bullish force for earnings and stocks. Despite high volatility, the S&P 500 is predicted to rise and possibly set new highs within the next year.

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