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Beyond the Bubble: Unpacking the Market’s Surprising Resilience Amidst Tariffs and Slowing Growth
- Alpesh Patel
- Aug 14
- 4 min read
The financial headlines have been relentless lately. Tariffs at multi-decade highs. Growth forecasts slashed. Job data softening. Consumer spending cooling. In other words - exactly the kind of conditions you’d expect to send equity markets into retreat. Yet here we are, with markets not only holding their ground but pushing higher.
So, is this a classic case of irrational exuberance - a bubble waiting to burst? Or is there something deeper at play?
After reviewing analysis from J.P. Morgan Private Bank and cross-checking against wider market data, the answer seems clear: this rally isn’t simply running on hype. It’s being fuelled by a combination of real earnings growth, corporate adaptability, and targeted policy tailwinds.
Let’s break that down.
1. The Market is Looking Past Slower Growth
Tariffs are at their highest levels since the 1930s - averaging 20%, up from just 2.5% at the start of the year. Growth estimates have dropped from 2.3% to 1.5%, and corporate earnings forecasts for the S&P 500 have been trimmed by around 3%.
On paper, that’s a recipe for a sell-off.
But instead of reacting to the short-term pain, investors seem focused on the recovery potential ahead. In other words, markets are discounting today’s slowdown and betting on tomorrow’s rebound.
Large-cap companies with strong fundamentals- global supply chains, pricing power, and diversified revenue streams- are at the heart of this forward-looking optimism. They’ve been through policy shocks before and learned how to adapt quickly.
2. Earnings Are Outpacing Expectations
Going into Q2 2025, consensus forecasts predicted S&P 500 earnings growth of under 5%. Actual results? Closer to 11%.
And it’s not just this quarter. Full-year earnings expectations for 2025 and 2026 have both been revised upward.
But this isn’t a rising-tide-lifts-all-boats story. The gains are concentrated among the big players: technology, financials, and communication services now make up nearly 60% of the S&P 500. These sectors have not only weathered tariffs-they’ve expanded margins.
Why? They have the “cushion” to absorb costs, the scale to negotiate favourable deals, and the balance sheets to keep investing when smaller rivals have to cut back.
3. Tariff Bark Worse Than Bite
When tariffs are announced, you’d expect an immediate hit to affected companies. But the reality has been far more nuanced.
Apple - facing a 100% tariff on imported semiconductors - saw its stock rise 13% after pledging a $100 billion US manufacturing investment and securing exemptions for devices made in India.
NVIDIA and AMD - facing export restrictions on AI chips - negotiated a revenue-sharing deal (15% of China AI chip sales to the US government) in exchange for continued export licences.
This is more than just resilience - it’s active corporate strategy. The largest players are not only absorbing shocks, they’re turning them into opportunities.
4. Policy Tailwinds Helping Big Business
The newly introduced One Big Beautiful Bill Act (OBBBA) allows full, immediate expensing of qualifying business property and domestic R&D. For hyperscalers like AWS, Azure, and Google Cloud, analysts estimate this could lift free cash flow by 30%.
Similar stories are playing out internationally. In Europe, a negotiated 15% cap on chip tariffs avoided a direct confrontation with the US, helping the Euro Stoxx 50 remain within 3% of record highs. Financials are benefiting from rate cuts, and industrials from long-delayed defence and infrastructure spending.
5. The Growing Divide Between Market Leaders and Laggards
While big, globally integrated companies are thriving, smaller consumer-facing businesses are struggling. They lack pricing power, are more exposed to domestic economic cycles, and don’t have the geopolitical leverage to shape policy outcomes.
The result? A widening gap in profitability and share price performance—a trend that could have long-term implications for economic structure and market dynamics.
Where the Opportunities Lie Now
Based on the data and sector trends, here’s where resilience and growth potential appear strongest:
Sector | Drivers of Opportunity |
Technology | AI investments, ongoing capital spending, OBBBA tax benefits |
Financials | Potential deregulation, stronger balance sheets, higher shareholder returns |
Utilities | Growing demand from AI-driven data centres and electrification |
Industrials (Europe) | Defence and infrastructure spending post-underinvestment |
Key Takeaways for Investors
Not all rallies are bubbles. This one is underpinned by solid earnings and corporate adaptability.
Size and quality matter. Large, well-managed companies with global reach are leading the charge.
Policy awareness is crucial. Legislative changes can quickly alter sector outlooks.
Sector selectivity pays. Technology, financials, utilities, and certain industrials currently stand out.
Final Thought
The headline risks - tariffs, slower growth, geopolitical friction - are real. But so is the resilience on display. As an investor, recognising the difference between noise and signal is vital.
This market rally may not be irrational exuberance at all. It may be a demonstration of something rarer: a system that, for all its flaws, can still adapt and thrive under pressure.
Sources & References
AP News; J.P. Morgan Private Bank; Reuters; Bloomberg; Financial Times; Time; Axios; FactSet; Investor’s Business Daily; MarketWatch; Tax Foundation; Business Insider; Investopedia; WebProNews; Goldman Sachs.
Disclaimer: This content is for educational purposes only and does not constitute financial advice. Past performance is not a reliable indicator of future results. Investing involves risk, and you should conduct your own research or consult a regulated adviser before making investment decisions. Alpesh Patel OBE
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