Early signs of tariff repercussions are appearing. Companies are withdrawing their forward guidance. It is just a matter of time before this reverberates through elevated earnings estimates for both this year and next. All this comes at a time when companies are enjoying near-record margins.

As of last Wednesday, 35.6 percent of S&P 500 companies were done reporting their March quarter. Blended operating earnings thus far have come in at $59.26. When the quarter ended a month ago, the sell-side was expecting $59.37; last July, these analysts were modeling in $64.59.

The sell-side typically starts out very optimistic and brings out the axe as time progresses. In keeping with this, 2025 and 2026 estimates currently stand at $261.40 and $299.61 (Chart 1); last July, these companies were expected to ring up $277.86 for this year; similarly, 2026 estimates this January were $310.02.

If the current estimates come through this year, this would have grown from last year’s $233.36, which incidentally was gradually revised lower from $246.31 expected as of March 2023. The downward revision trend should continue. Already elevated, these estimates are beginning to get impacted by President Donald Trump’s tariff policy, and the associated uncertainty.

General Motors yesterday said it is reassessing its full-year guidance amid tariff uncertainty, saying “the prior guidance cannot be relied upon, and we will come back to the market with clarity as soon as we have it.” First Solar (FSLR) similarly lowered 2025 guidance blaming new tariffs. Pfizer (PFE) did not revise its full-year outlook, but said uncertainty surrounding Trump’s pharmaceutical tariffs is stopping it from further investing in US manufacturing R&D. UPS (UPS), on the other hand, plans to slash 20,000 jobs this year, owing to the tariffs-induced shifting global trade landscape.

Ahead of Trump tariffs, corporate profits hit a record high. In the December quarter, profits with inventory valuation and capital consumption adjustments increased 6.9 percent from a year ago to a seasonally adjusted annual rate of $4.01 trillion. National income during the quarter came in at $24.47 trillion, for a margin proxy of 16.4 percent – a record (Chart 2). This is now clearly vulnerable.

Tariffs are taxes – plain and simple. They are paid at the customs by the importer. It is possible the exporter, or the supplier, foots some of the bill, but it is probable most of the cost is passed through to the customer. Popular Chinese e-tailer Temu has responded to the new tariffs by adding what it calls import charges of about 145 percent, displaying the new charge on the checkout tally. Amazon (AMZN) reportedly had a similar plan to show tariffs’ costs but was scrapped after Trump called to complain to founder Jeff Bezos.

The Trump administration keeps saying it is for instance the Chinese that pay the tariffs, but that is not the case. This should increasingly be evident in the weeks and months to come. Consumers are likely to get deterred by high prices, and economic activity is likely to suffer.

Once again, the risk facing S&P 500 companies is not only to the bottom line but margins as well. In the March quarter, operating margin reached a 13-quarter high 12.2 percent, with record high 13.5 registered in 2Q21 (Chart 3).

It was this uncertainty that caused the S&P 500 to quickly lose north of 20 percent. From the all-time high of 6147 posted on February 19^th through the April 7^th low of 4835, the large cap index sank 21.3 percent. From that low, it has rallied nicely, closing at 5561 on Tuesday. From the April 7^th low, it is up 15 percent.

The daily in particular has now been pushed into overbought territory. The still falling 50-day moving average lies at 5613, with the flattish 200-day at 5746. Right above the 50-day rests crucial horizontal resistance at 5660s, which is a must-save for the bears.

Should the index come under pressure right away, bulls absolutely must step up and save 5500.

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