The US stock market is like "a balloon floating over Wall Street, which can be popped with just a needle"? Bulls are also preparing for turbulence

Tariff clouds loom over US stocks, and high valuation markets face threats to profit growth.

Recently, US stocks have maintained historical highs under the pressure of tariffs, but analysts warn that investors are underestimating the risk of trade barriers impacting corporate profits.

Currently, the S&P 500 Index is trading at an expected price-to-earnings ratio of about 22 times, close to the highest valuation level since the pandemic. Analysts believe that the uncertainty of Trump's tariff policy is like a potential needle threatening this "perfect pricing" balloon, and bulls are preparing for potential turbulence; any negative deviation in economic data or corporate guidance could trigger a pullback.

Bloomberg data shows that the average tariffs paid by US importers have surged to over 13%, more than five times higher than last year. Alastair Pinder, HSBC's Global Equity Strategy Head, stated that this is enough to cut corporate profit growth by 5% or more.

Economic growth outlook under pressure, bulls on alert

Even the most steadfast bulls are preparing for volatility. Wall Street's well-known "big short," Mike Wilson, Chief US Equity Strategist at Morgan Stanley, stated that although he remains optimistic about the stock market's 12-month outlook, recent corporate guidance may fall short of expectations, leading to a 5%-10% market adjustment.

Wilson expects that tariff transmission could trigger risks in the third quarter, causing a 5-10% pullback.

Paul Nolte, a market strategist at Murphy & Sylvest Wealth Management, is more pessimistic, believing the market faces a real bear market risk, with declines of 20% or more:

"As our pricing has become nearly perfect, any shortfall in expectations could lead to a repricing of stocks. It's like a balloon floating around Wall Street looking for a needle, but no one knows what that needle is. It could very well be tariffs."

Bloomberg Economics estimates that current tariff levels will shrink the US economy by 1.6% over the next two to three years compared to a no-tariff scenario, with consumer prices rising by 0.9%. If inflation persists or accelerates, it will weaken investor expectations for interest rate cuts by the Federal Reserve this year.

Tariff impacts are beginning to show, corporate profits under pressure

As the Q2 earnings season for US stocks unfolds, the impact of tariffs has begun to manifest.

According to media reports, General Mills predicted last month that its sales costs would be impacted by 1%-2%, and it is limiting the impact through alternative materials and reformulation; Oxford Industries, the parent company of Tommy Bahama, significantly lowered its annual profit forecast due to an additional $40 million in tariff costs; economic bellwether FedEx warned that trade policies continue to pressure its business, including its high-margin US-China freight operations, with quarterly profits expected to fall short.

This week, several large companies will announce their earnings, including General Motors, which faces tariffs in the automotive industry, and Capital One Financial, which may reflect the strength of US consumers.

On a macro level, last Tuesday's release of the US June core CPI showed an accelerated increase, with tariff-sensitive categories like furniture and clothing indicating that companies are beginning to pass higher costs onto consumers

Policy Remains Uncertain, Market Shows Divergence

Despite concerns, there are still many optimistic voices on Wall Street. Goldman Sachs strategists believe that declining interest rates, low unemployment, and high corporate profitability support elevated valuations.

Additionally, the "Big Beautiful Bill" signed by Trump this month makes several corporate tax cuts permanent. According to Morgan Stanley's Wilson, this will contribute 5% to 7% to S&P 500 earnings growth.

Nathan Sonnenberg, Chief Investment Officer of the Pitcairn family office, stated that investors "expected the Trump administration to create more tightening measures earlier this year," but as the bill shows stimulating effects, it has alleviated some concerns.

Meanwhile, Trump's tariff policy remains uncertain. Although he has backed away from some of the most aggressive tariff threats, there is still a significant risk of overall tariff levels rising ahead of the latest deadline on August 1.

UBS Chief Strategist Bhanu Baweja stated on Bloomberg TV on Monday:

"Ignoring these tariffs and moving forward is the wrong reaction. I believe the market will only start to see this when the effects of inflation manifest and impact real disposable income."