00:00 Speaker A

as we're hearing even more around how investors are thinking about what could be this average tariff rate. We had Jennifer Lee of BMO tell us earlier this week and remind us that we began at an average tariff rate of about two percent at the start of this year, and now we've essentially 8X that at this juncture and are still waiting for that to come down with some of these deals. How are you reading through that?

00:34 Paul Christopher

Well, I think there is a little bit of uncertainty here into next week around what exactly happens with the tariff pause, but our sort of assessment based on the guidance that we've been given from Treasury Secretary Scott Beson is it seems like a willingness to give more time for countries that are negotiating in good faith with United States. And that seems to apply to most of the United States' key trading partners here. So by our estimate we're probably tracking an effective tariff rate of something like 15% for the US economy going forward. As you mentioned, that's notably higher than what had been prevailing for the US over the past several decades. It's the highest tariff rate since the 1930s. Um, but even with that, um, our analysis suggests the impacts onto fundamental growth are very likely to be manageable here. We're tracking a hit to real GDP growth, for example, of something like six tenths of a percent over the course of 2025. And so I think for an economy that was coming into the year growing something like 2%, that's looking like a manageable hit. It's still a headwind, but our expectation is that the US economy and corporate fundamentals for that matter can very likely power through this tricky period with slower, but still positive growth, um, in the year ahead, even with these higher tariffs.

02:57 Speaker A

And so, Paul, I just want to follow on that for a hot second and get your anticipations going into this next earnings season, what the tenor might be from companies. Some of them who had to pull guidance or also provide a range of guidance is two different scenarios from the public market companies that we will hear from.

03:28 Paul Christopher

I think earnings have been really a bright spot here, frankly. There's been enormous anxiety in the market, enormous uncertainty both from investors and the C-suite around this ever-evolving trade policy and other issues. But if you look at the first quarter, um, that was an excellent earnings season in terms of delivery. We got almost 14% earnings growth for the S&P 500 index, which was well above consensus expectations. And I think as we're sort of tracking into the second quarter here, two things stand out to me. First, we have a pretty low bar in terms of consensus estimates. They're only looking for something like 5% growth. I wouldn't be surprised if we ended up seeing high single digits or maybe even double-digit earnings growth in the second quarter. Uh, and then maybe even more important than that, as we've started to get a moderation in the the sort of tone and volatility around trade policy, those forward earnings estimates out over the remainder of 2025 and 2026 have started to stabilize, if not tick up a little bit for the US equity market. Some of that is strong results from the mega cap tech companies, and some of that is also just a broadening optimism that the fundamentals look like they're showing some resilience here and might be able to hold in despite all the volatility from policy.