Wall Street all but abandons its trade angst as rate cuts near

Optimism over Federal Reserve interest-rate cuts is putting anxiety over a global trade war firmly in the rearview mirror for many on Wall Street.

The S&P 500 Index has surged 32% since President Donald Trump first outlined his onslaught of global levies in April, with most forecasters expecting further gains before year-end. Measures of projected volatility look dormant, and analysts’ profit views for the first half of 2026 are climbing back toward where they stood at the beginning of the year.

While Trump’s tariffs weigh on business confidence and are slowly creeping into consumer prices, Wall Street is acutely focused on the Fed’s path for borrowing costs and continued enthusiasm around artificial intelligence to keep the S&P 500 rally afloat.

“It’s almost as if the trade war was a bad dream that lived mostly in Wall Street’s imagination,” Bloomberg Intelligence strategists Michael Casper and Wendy Soong wrote in a Sept. 9 note to clients.

Analysts are rapidly upgrading their profit outlooks after slashing them at the fastest pace since the onset of the pandemic in 2020. The trend highlights confidence in Corporate America’s growth engine that has supported the S&P 500 during its bull run.

Since bottoming in July, 2026 earnings estimates for the S&P 500 have climbed in each of the past nine weeks. At $295 per share, they’re in line with where they stood in late April, according to BI data.

“While tariff concerns may bubble back up should inflation numbers pick up, it isn’t enough to kill the positive vibes,” said Dave Mazza, CEO of Roundhill Financial Inc. “The high likelihood of rate cuts and strong earnings are driving stocks, with the AI boom providing the tailwind.”

Analysts are growing more optimistic after second-quarter profits grew by 11%, more than triple the preseason estimate as consumers showed resilience and AI spending continued. As a result, earnings projections are now rising for each of the next three quarters.

Most recently, United Airlines Holdings Inc. touted improved demand for travel, with the company’s chief executive officer saying he feels better about the global economy than just several weeks ago.

Data last week showed inflation rose in line with expectations in August, keeping the Fed on track to reduce borrowing costs. The core consumer price index, excluding the often volatile food and energy categories, increased 0.3% from July, according to Bureau of Labor Statistics data. On an annual basis, it advanced 3.1%.

Some companies on an individual level are being negatively impacted by tariffs, and their effect so far is showing up more in ISM prices data than CPI, according Michael Kantrowitz, chief investment strategist at Piper Sandler & Co. Trade policy is “like many macro concerns, a micro issue,” he said.

Some of the market’s resilience, he added, can be attributed to reduced uncertainty around tariffs rather than outright nonchalance, with a Bloomberg index that tracks global trade uncertainty falling to the lowest level this year, easing from April’s spike as the S&P 500 gained.

Over at Citigroup Inc., global head of macro and emerging market strategy Dirk Willer points out that the US effective tariff rate is running at 9% compared to the theoretical announced rate of closer to 18%. That’s due to one of two reasons, he says: transshipments – when goods are rerouted through lower-tariff countries – or official exemptions from new or existing levies.

Whether the trade war flares up again in the future depends on which of the two it is. If it’s the former, Willer says, that risks further targeted tariff changes down the line. If it’s the latter, a softer trade war may be a policy objective of the administration.

“The tariff issue has moved from the top of the focus list for investors,” said Miller Tabak & Co.’s Matt Maley. “However, when the next earnings season comes around, it will likely come into focus once again. The impact of the tariffs was always going to be a second half phenomenon, so investors will focus on what companies have to say about this issue once again in October.”