The full impact of tightened trade policy remains unclear as several proposed tariff increases have yet to be implemented. “The impact of tariffs on company profits is likely to be mixed,” says Haworth. “Companies more dependent on importing goods manufactured overseas may face more challenges,” Haworth says the same may be true for multinational companies that ship products overseas if other countries apply retaliatory tariffs.
By contrast, smaller companies not as dependent on foreign trade may be better positioned to weather the trade environment. “Since they aren’t selling into foreign markets and not dependent on foreign goods, smaller companies may have more pricing power,” says Haworth. That could translate into a healthier earnings picture. Haworth notes, “Smaller companies face a challenge with higher financing costs in today’s interest rate environment, which can hamper their bottom lines.”
Earnings and stock valuations
The P/E ratio measures broad market valuation and is also applied to individual stocks. It is the ratio of a stock’s current price compared to the company’s earnings. A stock trading at $30 per share with annual earnings of $2 per share has a P/E ratio of 15.
When assessing which of two stocks offers the best investment opportunity based on their P/E ratios, it’s not always an “apples-to-apples” comparison. “Determining fair value has a lot to do with the underlying growth rate of the industry in which the company competes,” says Haworth. In some cases, investors may be willing to bid up prices based not on current earnings, but on expectations of future profitability. “This tends to be the case, for example, with stocks that invest in new technology that may not have an immediate payoff but offer the potential of future strong earnings if they succeed,” says Haworth. “Other stocks may have lower P/E multiples, but those companies generate steadier earnings, so the payoff on the investment needs to happen in a more compressed timeframe.”
The underlying economic environment
Earnings are the ultimate driver of market performance. At times, other factors can influence short-term market swings. Federal Reserve interest rate policy often has an immediate impact on the markets. More recently, President Trump’s tariff proposals, and frequent changes to announced tariff plans, added to significant market volatility.
Investors often respond to the perceived potential corporate earnings impact based on specific events or policies. Despite the market’s early 2025 struggles, most underlying data remains favorable. “We still have a reasonably strong labor market,” says Haworth, “but recent surveys show consumers anticipate higher inflation going forward.” While consumer spending is the key driver of recent economic growth, Haworth says recent data raise questions about whether consumers might pull back spending activity. Consumer sentiment, as measured by a University of Michigan survey, fell considerably in 2025’s early months.3 Whether that translates into slower economic activity is not a given, but investors will closely monitor spending trends for signs of potential weakness that could dampen earnings.
While U.S. stock markets struggled in 2025’s first quarter, global stocks generated positive returns. “In the current environment, a globally diversified portfolio puts investors in a position to capitalize on a broad array of opportunities,” says Haworth.
As you assess your investment options and how to best position your portfolio, it can be helpful to do so in the context of a financial plan. Talk with your wealth professional to review whether changes to your investment strategy may be warranted to better reflect your goals, risk appetite and time horizon.