QuickTakes

Stock investors have concluded that this war won't last much longer. Furthermore, Iran won't have nuclear weapons or missile delivery systems. And Iran won't shut the Strait of Hormuz. Moreover, there's plenty of excess oil capacity around the world to replace any reduction in Iran's oil production and exports (chart).

We can be certain that stock investors will focus on the next earnings reporting season, which starts in early July. Industry analysts have lowered their expectations for Q2's S&P 500 earnings per share (EPS) growth sharply in recent weeks (chart). They've been doing the same for Q3 and Q4 until the past few weeks, when their estimates have remained relatively steady.

More importantly, industry analysts have stopped lowering their earnings estimates for 2026 (chart). This suggests they think most of the negative impact of Trump's tariffs will be over by the end of this year. We agree. We also agree with their current EPS estimates for S&P 500 companies of about $260 this year and $300 next year. As a result, S&P 500 forward EPS rose to a new record high during the June 12 week.

On the other side of the Pacific Ocean, China's latest batch of data shows more strength than we had expected. Real retail sales rose 6.9% y/y in May, while industrial production increased 5.8% y/y (chart). China is responding to Trump's tariffs by scrambling to expand its trade with other countries.

Retail sales growth has firmed even though Chinese consumer confidence remained extremely depressed in April (chart). The Chinese government has provided various incentive programs to boost consumer spending. They seem to be working.

On the other hand, China's 10-year government bond yield remains near a record low (chart). That's signaling that deflationary forces remain strong in China.