We already discussed how investors’ blind optimism pushed the S&P 500 to break another record last Thursday, despite some questionable circumstances. This week, earnings results will prove whether or not all that hopefulness is actually warranted.

A slew of corporate giants kick off the first week of Q2 earnings season in the coming days, including heavyweights like Netflix, JPMorgan Chase, and BlackRock.

This quarter is especially momentous because investors will finally get a fuller picture of how the ongoing trade war has been affecting business’ bottom lines. Last quarter’s earnings were earned before the tariffs had fully dropped—this quarter, however, encapsulates Liberation Day, the TACO trade, and everything in between. But companies still may not have absorbed the full impact of tariffs yet, given that the White House is still erratically posting negotiating the final levies.

A low bar: Analysts project S&P 500 corporate profits will jump 4.8% in Q2, which would be its lowest year over year growth since 2023, according to the Wall Street Journal. On top of that, Bloomberg Intelligence reports that six of 11 sectors are expected to post lower profits.

It doesn’t help that the S&P 500 is trading near a record high and at 22.4 times 12-month forward earnings, its highest valuation in three years, according to Barron’s. But analysts believe traders could push the index even higher if companies manage to beat the relatively low expectations.

Who will survive the post-Liberation Day world?

The trade war has already taken its first victims among the earliest reporters on the S&P 500. Conagra Brands, for example, fell to a 13-year low last week after its Q4 results missed projections. Helen of Troy also dropped sharply last week after announcing that its revenue and earnings declined year over year.

“As seen with Conagra and Helen of Troy last week, those impacted by tariffs will be differentiated by those who have pricing power and those who don't,” wrote Chief Investment Officer at Bleakley Financial Group Peter Boockvar today. “Tariffs are not magically disappearing if they don't show up in consumer prices, but somewhere along the supply chain someone is getting clipped.”

Elsewhere in corporate America, companies are doing whatever it takes to avoid the negative effects of tariffs: For instance, Bloomberg reported that Delta is taking engines off its new Airbus jets to get around US import duties.

First they took our tiny bags of peanuts, now they're removing engines? Airlines really will do anything to save a buck.—LB

🟢 What’s up

• Bitcoin is booming, and crypto stocks climbed along with it. MicroStrategy rose 3.86%, Robinhood Markets added 1.67%. and Coinbase gained 1.80%.
• Boeing rose 1.64% on preliminary reports that investigators have found no evidence of malfunction in the plane that crashed in India last month. Engine-maker GE Aerospace also gained 2.71%.
• Warner Bros Discovery climbed 2.39% thanks to a strong opening weekend for the new Superman movie.
• Autodesk popped 5.05% on the news that it is not pursuing an acquisition of rival software maker PTC. PTC fell 1.25%.
• Kenvue, the company behind Band Aids and Listerine, gained 2.18% after kicking its CEO to the curb.
• PayPal climbed 3.55% despite the news that JPMorgan will start charging the fintech fees for access to customer data.

What’s down

• Starbucks sank 1.60% on news that employees will have to return to the office four days a week. Shareholders were also unimpressed with the coffee giant’s new secret menu.
• Synopsys stumbled 1.74% after getting regulatory approval from Chinese authorities to acquire software designer Ansys for $35 billion. Ansys rose 3.03% on the news.
• Waters plunged 13.81% on the news that it will merge with Becton Dickinson’s bioscience and diagnostic solutions business in a $17.5 billion deal.
• Rivian Automotive lost 2.15% thanks to a downgrade from Guggenheim analysts, who forecast soft sales for the automaker’s latest models.

Investors seem confident that the latest tariff talk is a smokescreen, and that the TACO trade will save the day. But the belief that President Trump will also back down from his threats to fire Fed Chair Jerome Powell could be misplaced, according to one Wall Street pro.

George Saravelos, Deutsche Bank global head of FX research, recently warned that investors are underpricing the risks that Powell gets the boot. He noted that Polymarket traders think there’s just a 20% chance Powell is fired this year, but he believes the reality is higher than that. If the Fed head is ousted, the consequences could be severe: Saravelos predicts the dollar would drop 3% to 4% on a trade-weighted basis in the first 24 hours, while a fixed income selloff would push Treasury yields 30 to 40 basis points higher.

“With the Fed sitting at the pinnacle of the global dollar monetary system, it is also stating the obvious that the consequences would reverberate far beyond US borders,” Saravelos said.

Trump’s multiple threats to fire Powell have lately been dismissed by investors, who understand that firing the Fed Chair would invite immense market outrage. But new scrutiny over the Fed’s renovation of its Washington, DC headquarters and subsequent costs could finally give Trump the excuse needed to kick Powell to the curb—and do unspeakable damage to the country’s international financial position at the same time.

“Crypto week” may sound like something a guy you went to high school came up with to market worthless meme coins to teenagers on X, but it’s actually a legislative agenda in the House of Representatives.

Bitcoin briefly surged above $123,000 to a new record today in anticipation of all the various pro-crypto bills the legislative body could pass, including the GENIUS Act, the Digital Asset Market Clarity Act, and the anti-CBDC Surveillance State Act.

The various bills would define regulatory roles for the SEC and Commodity Futures Trading Commission, create a legal path for stablecoins and other tokens, and ban the Fed from creating its own digital currency. All of these efforts are aimed at bringing regulatory clarity to crypto markets, which industry bulls say will foster more mainstream adoption.

Other cryptocurrencies including ethereum, solana, and XRP also jumped in anticipation of the legislative wins.

The big deal with regulation: “We are filling a gap,” Beth Haddock, the global policy lead at Stablecoin Standard said in an interview with Brew Markets last week. “It’s just not OK that you have USDC, which is now a publicly traded company with Circle, and we don’t have stablecoin legislation.”

Why bitcoin is still booming

Wall Street has come around on digital assets in a big way, as financial titans shift from calling crypto a scam to guzzling bitcoins like they’re those $400 Hamptons melons.

Crypto exchange-traded funds have been raking in the cash as the Street gets more comfortable with the world of digital assets: Bloomberg reported that US bitcoin ETFs raked in over $2.7 billion in new money last week, one of the funds’ best periods ever.

Small startups, too, have been hoping to ride the crypto wave, buying cryptocurrencies to boost their share price.

The flip side: For all the legislation, tokenization, stablecoins, and hype, the industry is still marked by volatility, scams, and questionable use cases. Be wary about hopping aboard the bandwagon: If there’s one thing we have learned from the last few crypto booms and busts, it’s that the good times never last forever.—LB

• Elon Musk’s rocket company SpaceX has invested $2 billion into his artificial intelligence company xAI.
• The crypto tsunami continues: Crypto asset manager Grayscale has filed for an IPO.
• Here are the items that will cost more if tariffs on Mexico and the EU go through.
• Parents plan to spend less on back-to-school shopping this year than in 2024.
• Mark Zuckerberg says that Meta’s first AI supercluster will come online next year.
• Having trouble keeping track of all these tariffs? Here’s a handy breakdown of how things stand.

Tuesday doesn’t usually get the spotlight, but it’s suddenly the most important day of the week.

Tomorrow, we’ll get a look at the June consumer price index, or CPI, which is widely expected to rise as tariffs take their toll on inflation. Headline CPI hit 2.4% last month while core CPI, which excludes food and energy prices, rose to 2.8% year over year. Economists forecast headline inflation rose 2.6% in June and core CPI rose to 3%.

Tuesday also marks the beginning of the new earnings season, with big banks leading the charge as usual. We’ll hear from JPMorgan, BlackRock, Citigroup, Bank of New York Mellon, and Wells Fargo, as well as Albertsons, and JB Hunt.

Ironically, banking isn’t as important for banks as it once was. Last quarter, the big banks reported strong profits thanks largely to their trading desks, which saw a ton of action due to all the tariff turmoil and volatility therein. Meanwhile, the IPO pipeline and M&A market were still lagging, leaving many investment bankers just scraping by.

While both public debuts and dealmaking accelerated this past quarter, expect trading desks to continue to save the day this quarter.

🥚 Gen Z and millennials are leaving serious retirement money on the table. Here are 5 ways to boost your nest egg.

Here’s a great interview with author Kyla Scanlon about how the attention economy has warped the actual economy.

The CEO resigned, the company apologized, but there’s still no good answers for how Grok turned into ‘MechaHitler.’

Headline of the day: Little videos are cooking our brains. On an unrelated note, follow Brew Markets on Instagram!

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