Strategy & Insights

Q3 2025 earnings have been broadly resilient, with 87% of S&P 500 companies beating earnings per share (EPS) estimates as of October 31. But beneath the strong headline numbers, earnings breadth is narrowing. Markets are increasingly rewarding companies and sectors that meet two critical tests: 1) Turning AI/capex investments into credible gains; 2) Operating in sectors with structural quality (cash flow resilience, healthy balance sheets)

One of the more prominent reasons for why the U.S. Health Care sector has underperformed this year has been top-down policy uncertainty (i.e., tariffs) and what that could potentially mean for margins. But in early October, the Trump administration announced that it had come to an agreement with a large pharmaceutical/​biotech firm (Pfizer) that has flipped sentiment by an appreciable degree.

Among the myriad of events that have come up over the past few weeks, the most relevant one for U.S. sector investors might just be the end of the de minimis tariff exception. Indeed, as of August 29, the U.S. has started levying tariffs on imports that are less than US$800 at the designated rate under IEEPA1 (depending on the product’s country of origin).

In our minds, the single most important macro development over the past month has been the Trump administration’s attempt to de-escalate the trade war. Of course, that has been reflected in markets – with the S&P 500 rallying off of its April 7 lows. Indeed, markets have taken their cue from talks between the U.S. and other countries, which have resulted in agreements (most notably with China). Even if such arrangements are temporary, the implicit message is that the U.S. is intent on trimming the extremes of its trade policy – only a few months since it began tariffing other countries’ goods imports.