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Business executives have warned repeatedly about the damage President Donald Trump’s trade wars could do to their profits. Wall Street analysts and strategists have called increasing tit-for-tat tariffs the greatest risk to economic growth. Trade groups have raised alarms about the impact of rising prices on consumer spending.

Yet, as trade tensions have flared again, research analysts who forecast company earnings barely lowered their estimates for this year and next. That may not be good news for the stock market.

Companies in the S&P 500 are expected to increase their profits by 3.1 per cent this year. That’s just 0.2 percentage points lower than the forecast for growth at the start of May, when Mr. Trump dashed investors’ hopes that a trade deal with China was near, according to data from John Butters, the senior earnings analyst at FactSet. Sales-growth estimates for 2019 are just two-tenths of a percentage point lower, at 4.5 per cent.

Estimates for next year have also barely budged.

Given the concern surrounding tariffs, then, why haven’t earnings forecasts slipped more?

The answer, in short, is that it’s hard to quantify the costs of various on-again, off-again trade conflicts, or threats of future measures.

Many on Wall Street suspect Mr. Trump is just threatening more tariffs as a negotiating tactic, and deals will be struck before the most onerous levies go in to effect. The White House’s last-minute decision to call off tariffs on imports from Mexico would seem to encourage this kind of thinking.

Of course, the President has followed through on other tariffs, and that lack of certainty has left analysts wary of making big adjustments to their forecasts.

“There are so many different scenarios that people are trying to factor in,” said Carmel Wellso, director of equity research at Janus Henderson. “Everyone knows that earnings estimates likely need to come down, but by how much? That’s the biggest challenge.”

They also have to consider that governments and central banks around the world will step in to stimulate the global economy, possibly offsetting some of the damage of the trade wars.

Mr. Trump’s escalation of the trade fight on multiple fronts hit stocks hard in May. The S&P 500 fell 6.6 per cent. Stocks have rallied this month after Federal Reserve officials indicated they were prepared to act if the trade war threatened the economic expansion.

But the stock market is at risk of steeper declines if analysts do begin to revise down their forecasts.

The S&P 500’s slide in recent weeks has left the index by some measures looking fairly valued, with a price-to-earnings ratio, which compares stock prices to expected profits over the next 12 months, of 16.2 per cent. That’s below the five-year average for the index.

But stocks could quickly begin to look expensive if the economy and earnings falter.

Tariffs will have a direct impact on many companies’ bottom lines by raising costs. The bigger effect, though, could come from the disruption of supply chains and the hit the trade wars pose to consumer and business confidence, which could lead to further economic slowing.

Corporate profits may be particularly vulnerable right now. Revenue overall is growing faster than earnings for companies in the S&P 500. In the first quarter, sales rose about 5 per cent from a year earlier, while profits declined 0.4 per cent. And that dynamic is expected to persist over the next two quarters. In other words, companies need revenue growth of 5 per cent just to keep profits from contracting. That suggests companies have little ability to increase their bottom lines by expanding profit margins.

That means earnings could take a bigger hit if the tariffs cause the economy to slow and revenue growth to decline.

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