Traders Brace for Earnings as Tariffs and AI Spending Take Center Stage

U.S. stocks are entering earnings season at record highs, with investors brimming with optimism and little tolerance for disappointment. The S&P 500 has climbed 11% so far this year, propelled by a global surge in enthusiasm for artificial intelligence that has lifted markets worldwide. As expectations rise, analysts tracked by Bloomberg Intelligence now project third-quarter earnings growth of 7.4% for U.S. companies up nearly two percentage points since mid-August. Globally, profits for the MSCI All-Country World Index are also on track to hit an all-time high.

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But with trade tensions between the U.S. and China reigniting and whispers of an AI-driven market bubble growing louder, corporate America faces a tall order. Companies will need to post strong results to validate the S&P 500’s stunning 32% rebound from its April lows. Wall Street will also be watching for insight into key pressure points, from the staying power of AI investment to how rising tariffs are squeezing corporate margins.

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“I think investors will have very little patience for any kind of misstep whether it’s missing earnings targets or saying the wrong thing about future expectations,” said Sam Stovall, chief investment strategist at CFRA.

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JPMorgan Chase & Co. and other major banks will kick off third-quarter reporting next week, followed later in the month by the tech giants that have fueled much of this year’s rally. Here are five major themes investors will be watching as earnings season unfolds.

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Trade tensions, which unsettled markets earlier this year, took center stage again Friday after President Donald Trump announced plans to impose an additional 100% tariff on Chinese goods and new export restrictions on “any and all critical software” starting Nov. 1.

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Wall Street believes these elevated tariffs are already starting to bite. Deutsche Bank estimates that S&P 500 earnings growth would have been roughly one percentage point higher this quarter without their drag. And while companies were granted some leeway for limited tariff guidance in previous quarters, that grace period appears to be over, said Eric Freedman, chief investment officer at U.S. Bank.

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“We’re expecting greater transparency from companies and investors will likely be much less forgiving this time,” he noted.

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Asian exporters, which shipped over $1.3 trillion in goods to the U.S. last year, have so far weathered tariff hikes relatively well. Yet some analysts attribute that resilience to front-loaded shipments and expect the real impact to emerge later. In Europe, however, analysts are already cutting forecasts. A Citigroup index shows earnings estimates there have been steadily downgraded since March.

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Despite tariff uncertainty, global investment in artificial intelligence continues to soar. UBS projects worldwide capital expenditures will jump 67% this year to a record $375 billion. According to Société Générale, capex as a share of sales is at its highest level in 25 years.

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If companies start pulling back on these investments, it could threaten the extraordinary rallies seen in AI-linked names from semiconductor giants like Nvidia to infrastructure and service providers benefiting from the AI boom.

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A slowdown would be “like slamming on the brakes,” warned Mike O’Rourke, chief market strategist at JonesTrading. “You’d likely see investors move quickly into profit-taking mode.”

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European sectors that power AI such as telecom, energy, and utilities could also feel the pain. A Bloomberg basket tracking ten such firms, including Siemens Energy AG and Orange SA, has jumped 24% this year.

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Meanwhile, Asian chipmakers like Hua Hong Semiconductor and Semiconductor Manufacturing International Corp. have seen similar gains, helping the Hang Seng Tech Index surge nearly 40% in 2025. But stretched valuations have left investors searching for concrete proof that AI spending is translating into real profits.

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Investors will also be paying close attention to employment commentary, particularly with the federal government shutdown halting key economic data releases. Signs of broad-based layoffs could spark fears of weakening consumer spending, weighing on sectors such as retail and dining, said Ross Mayfield, investment strategist at Robert W. Baird & Co.

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“If enough companies start announcing job cuts especially without official labor data to offset the headlines it’s a clear warning that the job market is softer than expected,” he explained. “It’s a very narrow landing strip.”

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The dollar’s movements could play a key role this earnings season. While the greenback strengthened against major peers during the third quarter, it remains weaker than a year ago and far below its 2022 peak providing a tailwind for U.S. multinationals. A softer dollar makes exports more competitive and boosts the value of foreign profits once converted to U.S. currency.

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This dynamic, combined with surging AI-driven capital spending, could add “another 5% to 7% upside to current earnings estimates,” said Jeff Buchbinder, chief equity strategist at LPL Financial, who expects profits to grow at a “low-teens pace” in Q3.

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European exporters, however, are facing the opposite problem. Despite a slight dip in recent weeks, the euro remains relatively strong, weighing on earnings for globally exposed companies in the Stoxx 600 index, where roughly 60% of revenue comes from abroad. Construction, healthcare, and tech firms are among the most vulnerable, said Susana Cruz of Panmure Liberum.

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Investors are also closely monitoring China for signs of resilience amid the trade war. The CSI 300 index has climbed 17% this year, but earnings forecasts remain muted with third-quarter profit growth expected at just 3%, according to Bloomberg data.

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The outlook could worsen if U.S.-China tensions escalate further. Trump’s upcoming trip to Asia and his meeting with President Xi Jinping remain uncertain, and both countries have signaled intentions to tighten controls on critical technologies and resources.

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Even so, some analysts see glimmers of optimism. Goldman Sachs expects China’s earnings downgrades to slow, citing stronger industrial production and factory activity. Others point to Beijing’s recent efforts to curb “involution,” or ruinous price wars among domestic firms, as a stabilizing force.

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“Earnings may improve gradually as the government reins in price competition,” said Vey-Sern Ling, managing director at Union Bancaire Privée. “Still, investors will likely focus on AI-related progress even if profits remain subdued.”

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