Tariffs Are High. So Is the Stock Market.

To the casual observer, the rally in the stock market may seem baffling.

The effective tariff rate on U.S. imports is the highest it has been since the 1930s, upending supply chains, stoking inflation concerns and underpinning an intensifying war of words between President Trump and Jerome H. Powell, chair of the Federal Reserve.

But the S&P 500 has continued to hit new highs. The index has recovered all the ground it lost in the global market sell-off in April, after Mr. Trump announced sweeping tariffs. It is now more than 5 percent above its last peak, in February, and almost 10 percent higher for the year.

For the time being, the economic reality of tariffs has yet to catch up with the market’s earlier worries.

Corporate profits remain strong, and the economy, despite worries about what’s to come, is still solid. There are pockets of weakness, but the biggest companies that drive the S&P 500’s performance have been largely insulated against further impact from tariffs, propelled instead by the growth of artificial intelligence.

“There is a case to be made there that we are through the worst of it,” said Stuart Kaiser, an equity strategist at Citigroup.

With most companies in the S&P 500 having already reported earnings for the three months through June, the average growth rate of the companies in the index nudged into double digits for the third quarter in a row, according to data from FactSet.