Stocks are pricing in the sweet relief of an earnings recovery

One way to characterize the big rally in US markets on Monday is that traders are pricing in better fundamentals for the stocks that were facing intensifying operational challenges — no matter if those issues were tariff-induced or not.

Of the 36 stocks that have seen 12-month forward earnings-per-share estimates fall by at least 10% since the March 31 peak in projected profits for the S&P 500, 70% are outperforming the index’s 2.6% advance on Monday as of 11:25 a.m. ET.

Some of these stocks were facing direct challenges from tariffs, like trucking company PACCAR and General Motors. Others, like Tesla, were mainly caught up in idiosyncratic issues of their own making. And, of course, energy stocks battered by the downdraft in prices are cheering the sharp rise in oil prices today that’s part of the risk-on move.

The common theme seems to be that a world with fewer tariffs than feared is going to mitigate worst-case scenarios for profitability across the board.

Earnings revision momentum turned sharply negative in April, reaching the worst levels since the 2020 pandemic, with the lion’s share of the decline in S&P 500 forward earnings attributable to consumer discretionary (tariffs) and energy (an OPEC-induced positive supply shock).