The Smart Finance App noted that, driven by strong economic growth, USA companies are experiencing one of the best earnings seasons in three years. However, this is not enough to offset concerns about tariffs and high interest rates.

Data shows that companies representing three-quarters of the Market Cap of the S&P 500 Index have reported earnings, with EPS expected to grow by 12.5%, up from an expectation of 7.3% before the quarter began. This is significantly higher than the average increase of 5.5% since the first quarter of 2022.

However, this does not mean that investors will be pleased with these performances. Data shows that stocks exceeding earnings expectations still performed 0.1% lower than the average of the S&P 500 Index on the day of the announcement—this is one of the worst responses in four years. Companies that did not meet expectations also faced punishment, with their stock prices lagging the benchmark index by an average of 3.2%.

USA corporate profits far exceed the three-year average.

Before the earnings season began, the USA stock market had already shown volatility due to high interest rates, tariffs, and the overvaluation of Technology stocks, factors that hung over investors like the sword of Damocles.

BI's Chief Equity Strategist Gina Martin Adams stated, "The S&P 500 Index easily reached a level that doubled the earnings target, but the lower-than-expected rate of positive surprises and investors' overly high expectations for the dominant seven giants have caused stock prices to hover near historical highs and face difficulties."

In fact, some companies among the 'seven technology giants,' including Alphabet (GOOGL.US), Microsoft (MSFT.US), and Amazon (AMZN.US), did not perform well. The stock prices of chip design company Arm Holdings Plc (ARM.US) and industrial company Honeywell International also fell, as lackluster prospects overshadowed better-than-expected earnings.

Sophie Huynh, a senior cross-asset strategist at BNP Paribas Asset Management, said that analysts lowered expectations ahead of the season, which is also part of the reason why the rate of positive surprises seems so 'healthy.'

"We found that the sales of defensive sectors exceeded expectations more than those of cyclical sectors, and the impact of lower-than-expected EPS on stock prices was quite significant," she said. "In addition, the earnings guidance also appeared slightly weak."

Robust reports from retail-oriented companies like Yum Brands (YUM.US), the owner of KFC, and apparel manufacturer Ralph Lauren (RL.US) alleviated concerns about consumer spending. Walt Disney Company's earnings exceeded expectations, and unexpected demand for Pfizer's COVID-19 vaccine helped the company surpass quarterly forecasts.

As investors' concerns about soaring inflation later this year increase, attention is now turning to the remaining time in 2025 and companies' ability to protect their margins. BI data shows that about 44% of S&P 500 Index companies exceeded operating margin expectations this quarter, the lowest proportion since the end of 2022.

"Although this earnings season has progressed smoothly, it now heavily relies on profit protection from large companies," said Florian Ielpo, head of macro research at Lombard Odier Investment Managers. "This method poses risks for future earnings seasons."