In light of the recent trade spat with China, which is currently on hiatus after the G20 summit it appears, the U.S. corporate earnings picture continues to degrade, with companies exposed to tariffs taking the most substantial hits.

As profit reports just start to come in, profit expectations are worsening. Economic prognostications already were indicating negative earnings growth for the second quarter, but the forecast for continued losses has also now broadened for the third quarter, according to the latest FactSet calculations.

Factset now approximates that the third quarter forecast has transitioned from a slight gain of 0.2% as recently as June 7 to a slight decline of 0.3% as of late last week. Encompassing the Q1 0.3% decline and an expected shortfall of 2.6% in Q2, that would demarcate the first three-quarter pullback in profits in three years, which occurred during the earnings recession from Q4 2015-Q2 2016.

The Minnesota-based Fastenal, the largest fastener distributor in North America, with a $17 billion market value just sounded the alarm on tariffs ,reporting worse-than-expected second-quarter earnings and revenue on Thursday. The company also particularly noted the damage the trade war has done to its business and the difficulty of countering the losses.

“While we successfully raised prices as one element of our strategy to offset tariffs placed to date on products sourced from China, those increases were not sufficient to also counter general inflation in the marketplace,” Fastenal said in a press release.

“We have taken additional actions in the 3rd quarter of 2019 to counter the broader pressures we are experiencing on our costs as well as the additional tariffs that were levied on China sourced products in May 2019,” the company said.

Shares of Fastenal dropped more than 4% on Thursday. The stock was up more than 19% heading into Thursday’s poor report. The company said it earned 36 cents per share in the second quarter on $1.37 billion in revenue. Both results failed to meet analysts’ estimates.

“The global manufacturing sector is now in contraction,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group. He said “definitely” more companies will sound alarms on China tariffs heading into this earnings season.

 The U.S. elevated tariffs to 25% from 10% on $200 billion of Chinese goods in May, and China raised duties on $60 billion in U.S. goods in response. While the two countries agreed to a truce at the G-20 Summit, a long-term trade deal doesn’t seem like a reality anytime soon.

While the market is trading around its highs, for investors who feel that earnings are likely to flag, the ProShares Short S&P 500 (SH) could be worth a look.

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