Tariff Pause Boosts Markets, but Earnings Disappointments Loom

The markets breathed a sigh of relief on Monday as U.S. President Donald Trump agreed to pause tariffs on Canada and Mexico for at least 30 days. The news sparked a relief rally, with major U.S. benchmarks snapping a two-day losing streak. The S&P 500 rose 0.72%, the Dow Jones Industrial Average added 0.3%, and the Nasdaq Composite climbed 1.35% (CNBC, 2025-02-05). However, investors' worries were not entirely assuaged, as persistent jitters about long-term uncertainty kept stocks from having a positive day.



While the tariff pause provided short-term relief, investors turned their attention to earnings reports, which were off to a strong start. However, two prominent tech companies, Alphabet and AMD, disappointed investors with their earnings reports. Alphabet's fourth-quarter revenue missed expectations, causing shares to fall as much as 9% in extended trading. The tech giant's revenue came in at $96.47 billion, compared with $96.56 billion expected by LSEG (CNBC, 2025-02-05). Meanwhile, AMD's data center sales missed estimates, with the company reporting fourth-quarter data center sales of $3.86 billion, which fell short of the FactSet estimate of $4.14 billion. Net income came in at $482 million, down from $667 million a year ago (CNBC, 2025-02-05).

The earnings disappointments from Alphabet and AMD served as a reminder that corporate fundamentals remain critical to stock performance, even in the face of geopolitical uncertainty. Investors were quick to react to the news, with shares of both companies slumping in extended trading. The immediate slump in shares signals that investors remain focused on corporate fundamentals when making stock performance decisions.



As investors digest the earnings reports from Alphabet and AMD, they may begin to reassess their expectations for other tech companies. If investors perceive that tech companies are overvalued, they may sell their shares, leading to a decrease in stock prices. Conversely, if investors believe that the misses were one-off events, they may continue to hold or even buy more shares, leading to an increase in stock prices.

The earnings misses from Alphabet and AMD may also lead other tech companies to reassess their own earnings guidance. If other tech companies lower their earnings guidance, it could lead to a broader sell-off in the sector. Conversely, if other tech companies maintain or raise their earnings guidance, it could lead to a rally in the sector.

In conclusion, the pause on tariffs for Mexico and Canada provided short-term relief to markets and investor confidence. However, long-term uncertainty and potential sector-specific impacts remain a concern, which could affect market sentiment and investor confidence in the long run. The earnings disappointments from Alphabet and AMD serve as a reminder that corporate fundamentals remain critical to stock performance, even in the face of geopolitical uncertainty. As investors reassess their expectations for tech companies, they may begin to sell shares, leading to a decrease in stock prices. However, if investors believe that the misses were one-off events, they may continue to hold or even buy more shares, leading to an increase in stock prices.