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The equity rally that followed the temporary easing of U.S.-China tariffs may be losing steam, as investors grow wary of whether current valuations can be sustained.

Adam Parker, founder of Trivariate Research, noted in a recent client memo, “The risk-reward in the S&P 500 isn’t especially compelling,” and flagged concerns over unstable earnings visibility.

He emphasized that while the median year-over-year Q3 earnings growth rate over the past 20 years is 4.7%, current projections for Q3 2025 are at 7%. These expectations come despite tougher comps and follow just six months after the imposition of major tariffs.

“Does this all really add up? We don’t think so,” Parker said.

FactSet data shows the S&P 500 is trading at a forward P/E of 21.6—roughly the same as late 2024, before tariffs were reintroduced.

Anthony Saglimbene, Chief Market Strategist at Ameriprise, said in a note to clients that “investors have rapidly shifted from a cautious stance to a more optimistic one,” closing much of the opportunity gap that had existed in early April.

Economic Outlook

Despite mounting concerns, the U.S. economy has consistently outperformed post-pandemic expectations.

Michael Grant, Co-CIO at Calamos Investments, told CNBC he believes economic pessimism is overstated and that a recession this year remains unlikely.

“The market is interpreting the current tariff approach as part of a broader economic stimulus effort,” he said.

Corporate Messaging Signals Caution

Yet optimism in financial markets contrasts with the tone from corporate America.

According to FactSet, from March 15 to May 15, 381 S&P 500 companies referenced “uncertainty” during their Q1 earnings calls. That figure is well above the 5-year average of 224 and the 10-year average of 179. It's also more than double the number seen last quarter (187), and second only to Q1 2020 (393) in the past decade.

In total, 84% of the 451 earnings calls held during that period included the term “uncertainty.”

Sector breakdown:

• The industrials (69) and financials (68) sectors had the highest number of companies citing uncertainty.

• On a percentage basis, financials (96%), real estate (93%), and industrials (92%) led the field.

Bottom Line

These signals reflect a deepening sense of caution among executives in response to trade policy shifts and broader macro risks. For current valuations to hold, companies will need to deliver earnings that decisively beat expectations and help restore confidence in the growth narrative.

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