Corporate America posts best earnings in 4 years despite tariffs

US corporate profits are growing at their fastest pace in four years, defying expectations that president Donald Trump’s trade war will slow US companies.

Average year-over-year earnings growth across the Russell 3000 Index — an index of the entire U.S. stock market — reached 11 percent in the third quarter, up from 6 percent in the previous three months, according to Morgan Stanley. This is the fastest growth rate since the third quarter of 2021.

Six of the 11 sectors that make up the S&P 500 posted positive average earnings growth in the three months through September, according to Deutsche Bank analysts, up from just two — financial stocks and giant technology stocks — between April and June.

The booming growth comes despite warnings from executives earlier this year that Trump’s sweeping tariffs would drive up costs, harm supply chains, and pose a threat to economic growth.

“Businesses have found ways to absorb the impact of the tariffs, and consumers will continue to spend as long as they have a job,” said Dick Mullarkey, managing director at SLC Management, which manages $300 billion in assets.

The vast majority of S&P 500 companies have reported third-quarter numbers and results so far are above consensus analyst expectations and one of the highest on record, said David Kostin, equity strategist at Goldman Sachs.

“In our 25-year data history, this frequency of earnings surprises has only been exceeded during the Covid reopening period in 2020-2021,” he wrote in a note to clients this week.

Analysts expect profits to grow 7.5 percent in the fourth quarter, according to data provider FactSet.

Business sentiment was supported by trade agreements with Japan and the European Union, while Trump and Chinese leader Xi Jinping agreed last month to a one-year trade truce.

Automakers Ford and General Motors said they expect to impose lower tariffs as a result of the Trump administration’s expanded relief measures for imported auto parts.

Energy companies, real estate and industrial groups are also recording strong sales growth and expanding profit margins. NRG Energy benefited from data center construction and improved travel demand boosted Southwest Airlines.

Banks, including Goldman Sachs, Citigroup and JPMorgan Chase, posted bumper profits, helped by a return to deal-making activity and strong trading income thanks to financial market volatility.

Although Meta disappointed the market with its massive capital spending plans, major technology groups such as Alphabet, with the help of Google’s search and advertising business, and Microsoft posted results that exceeded analysts’ estimates.

However, warnings from some consumer-facing companies suggest that many Americans may suffer, analysts say.

Packaged food group Kraft Heinz’s chief executive referred to consumer sentiment over Christmas as “one of the worst” in decades, while hamburger chain McDonald’s said customers were starting to back away from its more expensive offerings.

Analysts at Deutsche said companies that sell goods rather than services were “the clear laggards” this earnings season, with “consumer-facing companies” performing worse than those that sell mostly to other businesses.

The absence of official jobs data due to the US government shutdown has increased investors’ uncertainty about the state of the labor market and consumer health.

Alternative sources of data including the National Federation of Independent Business, the San Francisco Fed and state unemployment claims show the jobs market “remains in good shape,” said Torsten Slok, chief economist at investment firm Apollo Global Management.

This is despite significant layoffs by major companies recently, with at least 17 S&P 500 groups, including Amazon, UPS and Target, shedding nearly 80,000 jobs since the start of September, according to Goldman Sachs.

The University of Michigan Consumer Confidence Index fell to its lowest level in three years in November. The decline in trust “was widespread across the population, and appeared across ages, income and political affiliations,” said Joan Hsu, the survey’s director.

There was “one major exception” – sentiment among consumers with large stock holdings rose 11 percent, Hsu added.

Lisa Shalit, chief investment officer at Morgan Stanley Wealth Management, said the “widening gap” between the haves and have-nots explains why consumer demand has been resilient despite a weak labor market.

The top 40 percent of households in terms of income “control nearly 85 percent of American wealth, two-thirds of which is directly tied to the stock market, which has risen more than 90 percent in three years,” she said.

As a result, “predicting the labor market may increasingly be less important than predicting the direction of the stock market itself for understanding consumption levels.”