Tariffs Impact & Outlook - Barclays initially cut S&P earnings estimates by approximately $10 due to anticipated tariff impacts [1] - The market has yet to fully reflect the impact of tariffs, but signs are expected to emerge this quarter [2][4] - The base case assumes tariffs of roughly 30% on China and 10% on the rest of the world, primarily affecting margins in sectors outside of tech, especially discretionary and staples [10] - The industry anticipates earnings to rebound sharply by 9+% next year, even with moderate economic growth [5][11] - Tariff impacts are expected to be partially offset by accelerated depreciation, R&D expensing, and interest deductibility [12][13] - The industry estimates that 50% of tariff costs will be absorbed in margins, while the other 50% will be passed on to consumers through price increases [13] Tech Sector Performance - Tech sector earnings are expected to outperform, potentially "bailing out" the overall market, with expectations of exceeding consensus growth estimates [3] - Big Tech companies are experiencing significant productivity gains from AI, leading to potential workforce reductions, with software productivity up 30-40% [8] - Tech-centric businesses are better positioned to manage margins due to AI adoption, while other sectors face challenges in adapting and improving productivity [8][9] Consumer & Economic Factors - Consumer spending showed weakness in Q1, even before tariff pressures, particularly in discretionary and staple sectors [3] - A relatively strong consumer and low unemployment have been key pillars of US economic growth, providing a respectable economic backdrop [13] Margins & Productivity - AI productivity is significantly impacting the tech sector, but its broader economic impact is not yet evident [7][8] - Labor costs are currently benign, supporting margins, and AI-driven productivity is expected to improve further [6]