According to Zhitong Finance APP, the S&amp;P 500 index is just one step away from its historical high; however, the earnings season will kick off in a few weeks, and this market frenzy is about to face a significant test.
Corporate Earnings &#34;Flashing Red&#34;
The headwinds from tariffs remain concerning. Data compiled by Bloomberg Intelligence shows that Wall Street expects the profits of S&amp;P 500 constituent companies to grow by only 2.8% year-on-year in the second quarter, the smallest increase in two years. Even more worrying is that data compiled by Yardeni Research indicates that out of the 11 sectors in the S&amp;P 500 index, only 6 sectors are expected to see profit growth, marking the fewest number of growing sectors since the first quarter of 2023.
These bleak forecasts amplify warning signals about the sustainability of the stock market rebound. Some market observers warn that current valuations are already too high, and the S&amp;P 500 index needs substantial profit growth from companies or a significant reduction in interest rates by the Federal Reserve to justify the current valuation levels. Meanwhile, technical analysts believe that unless more sectors join the rebound, the index may decline in the coming months.
Sarah Hunt, Chief Market Strategist and Partner at Alpine Woods Capital Investors, stated, &#34;The stock market rally certainly faces risks. Earnings are the primary driver of the market, and the biggest question now is whether the recession outlook for certain industries outweighs the growth momentum in others.&#34;
Profit growth expectations for the second quarter of 2025 have declined due to tariff and geopolitical risks.
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Tariff Concerns Linger
The potential impact of global tariffs is a significant reason for the bleak expectations for the earnings season starting in mid-July. Major companies have already begun issuing warnings: earlier this week, FedEx (FDX.US) stated that its profits for the quarter would fall short of expectations and declined to provide performance guidance for the remainder of the year, citing &#34;uncertainty in the global demand environment.&#34; General Mills (GIS.US) also expressed similar concerns, expecting adjusted profits to decline as value-seeking consumers are affected by tariffs, global conflicts, and changing regulations.
According to data compiled by Yardeni Research, analysts believe that the energy sector will see the largest decline in profits in the second quarter, with a year-on-year drop of 25.5%. The consumer discretionary sector is expected not to achieve profit growth, marking the first time in ten quarters.
Baird investment strategist Ross Mayfield stated, &#34;With a weakening labor market, rising tariff uncertainties, and the fading of post-COVID revenge spending, consumer enthusiasm has cooled.&#34;
However, Ed Yardeni, President of Yardeni Research, and others believe that analysts' predictions for the upcoming earnings season are overly conservative
Yardeni stated, &#34;In fact, they have stopped lowering expectations in recent weeks, and I wouldn't be surprised if they start raising them. They are more optimistic about the outlook for 2026.&#34;
CFRA Chief Investment Strategist Sam Stovall added that companies have done a good job managing market expectations, which may mean that the factors contributing to weak earnings have already been reflected in stock prices.
However, even strong quarterly performance may not completely alleviate concerns about tariff uncertainty. Despite better-than-expected earnings in the first quarter, companies in the U.S., Europe, and China have lowered their full-year earnings forecasts or provided pessimistic outlooks, citing rising costs, weak consumer confidence, and insufficient business confidence due to trade tensions.
A survey conducted by Business Roundtable in June of 169 CEOs showed that, due to the ongoing tariff turmoil, they have adjusted their expectations and plans for the next six months downward. Investor concerns may only be alleviated once companies disclose how they responded to trade-related turmoil in April and May.
Bloomberg Intelligence equity strategy data analyst Wendy Soong stated, &#34;Companies are still unclear about the impact of tariffs, and more companies have lowered their expectations for 2025 because it is difficult for them to accurately estimate the cost impact, which could harm their profit margins.&#34;

.SPX

The upward trend in the US stock market is facing a test, with the S&P 500 nearing an all-time high, but the earnings season is approaching, and expectations for corporate profit growth are bleak. It is expected that profits in the second quarter will grow by only 2.8% year-on-year, the lowest in two years. Analysts warn that current valuations are too high and require significant profit growth or interest rate cuts to support them. Some companies, such as FedEx and General Mills, have already issued profit warnings, reflecting uncertainties in global demand and the impact of tariffs

- The S&P 500 index is close to a historical high, but the upcoming earnings season poses significant challenges due to concerns over corporate profits and tariffs.  
- Analysts predict a mere 2.8% year-on-year profit growth for S&P 500 companies in Q2 2025, the lowest increase in two years, with only six out of eleven sectors expected to see profit growth.  
- Companies like FedEx and General Mills have issued warnings about lower-than-expected profits, reflecting broader concerns about tariffs, geopolitical risks, and consumer spending.

The profit engine is likely to "stall," and the upward momentum of the US stock market faces a major test