Rate cuts are imminent, and Wall Street has almost given up worrying about the trade war!

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Driven by expectations of Fed rate cuts, Wall Street's concerns over the global trade war are being completely cast aside.

Recently, Bloomberg Intelligence strategists Michael Casper and Wendy Soong wrote in a report that the trade war is almost like a nightmare imagined by Wall Street. This shift highlights that the market's focus on monetary policy prospects far outweighs worries over trade policy.

Since Trump first announced a global tariff offensive in April, the S&P 500 has soared 32%, and most forecasters expect further gains before the end of the year.

Although Trump's tariff policies have dented business confidence and gradually driven up consumer prices, Wall Street remains firmly focused on the Fed’s rate-cutting path and the ongoing AI boom to sustain the S&P 500’s rally. Implied volatility gauges are dormant, and analysts’ earnings expectations for the first half of 2026 are rebounding to early-year levels.

Strong Rebound in Earnings Expectations

Analysts are quickly raising earnings expectations, a trend that underscores confidence in the growth engine of U.S. companies and supports the S&P 500’s bull market.

Since bottoming in July, S&P 500 earnings expectations for 2026 have climbed for nine consecutive weeks. According to Bloomberg Intelligence data, the current per-share estimate of $295 is consistent with the late-April level.

Roundhill Financial CEO Dave Mazza said that although a rebound in inflation data might reignite tariff concerns, it’s not enough to kill the positive sentiment. The high probability of rate cuts and strong earnings are driving stocks higher, and the AI boom is providing a tailwind.

Positive Sentiment Fueled by Outperforming Corporate Earnings

Improved analyst confidence stems from an 11% Q2 profit increase—more than triple the pre-quarter forecast—resilient consumers, and continual growth in AI spending. Thus, earnings forecasts for the next three quarters are all on the rise.

United Airlines recently announced improved travel demand, with its CEO stating that compared to a few weeks ago, he feels more optimistic about the global economy.

Data last week showed August inflation rose as expected, keeping the Fed on course for rate cuts. According to Bureau of Labor Statistics data, the core consumer price index—excluding the volatile food and energy categories—rose 0.3% from July and 3.1% year-over-year.

Tariff Impact Still Limited

According to Piper Sandler Chief Investment Strategist Michael Kantrowitz, some companies are negatively affected by tariffs at the micro level, but for now the impact is seen more in ISM price data than in the consumer price index. He stated that trade policy, “like many macro worries, is a micro issue.”

Part of the market's resilience can be attributed to reduced uncertainty surrounding tariffs, rather than total indifference. The Bloomberg Global Trade Uncertainty Index has fallen to its lowest level this year, down from the April peak, during which the S&P 500 has risen.

Dirk Willer, Citi’s head of global macro and emerging markets strategy, pointed out that the effective US tariff rate is 9%, while the theoretically announced rate is nearly 18%. This is due to one of two reasons: transshipment—products exported via low-tariff countries—or official exemptions from new and old tariffs.

Miller Tabak analyst Matt Maley noted that tariffs are no longer the main focus for investors. However, with the upcoming earnings season, they may turn into a focus again. The impact of tariffs was originally meant for the second half of the year, so investors will revisit how companies address this issue in October.

Risk Warning and DisclaimerThe market has risks; investment needs caution. This article does not constitute personal investment advice and does not consider the specific investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article suit their specific situation. Any investment made accordingly is at your own risk. ```