We already discussed how investors’ blind optimism pushed the S&P 500 to break another record last Thursday, despite some questionable circumstances. This week, earnings results will prove whether or not all that hopefulness is actually warranted.
A slew of corporate giants kick off the first week of Q2 earnings season in the coming days, including heavyweights like Netflix, JPMorgan Chase, and BlackRock.
This quarter is especially momentous because investors will finally get a fuller picture of how the ongoing trade war has been affecting business’ bottom lines. Last quarter’s earnings were earned before the tariffs had fully dropped—this quarter, however, encapsulates Liberation Day, the TACO trade, and everything in between. But companies still may not have absorbed the full impact of tariffs yet, given that the White House is still erratically posting negotiating the final levies.
A low bar: Analysts project S&P 500 corporate profits will jump 4.8% in Q2, which would be its lowest year over year growth since 2023, according to the Wall Street Journal. On top of that, Bloomberg Intelligence reports that six of 11 sectors are expected to post lower profits.
It doesn’t help that the S&P 500 is trading near a record high and at 22.4 times 12-month forward earnings, its highest valuation in three years, according to Barron’s. But analysts believe traders could push the index even higher if companies manage to beat the relatively low expectations.
Who will survive the post-Liberation Day world?
The trade war has already taken its first victims among the earliest reporters on the S&P 500. Conagra Brands, for example, fell to a 13-year low last week after its Q4 results missed projections. Helen of Troy also dropped sharply last week after announcing that its revenue and earnings declined year over year.
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“As seen with Conagra and Helen of Troy last week, those impacted by tariffs will be differentiated by those who have pricing power and those who don't,” wrote Chief Investment Officer at Bleakley Financial Group Peter Boockvar today. “Tariffs are not magically disappearing if they don't show up in consumer prices, but somewhere along the supply chain someone is getting clipped.”
Elsewhere in corporate America, companies are doing whatever it takes to avoid the negative effects of tariffs: For instance, Bloomberg reported that Delta is taking engines off its new Airbus jets to get around US import duties.
First they took our tiny bags of peanuts, now they're removing engines? Airlines really will do anything to save a buck.—LB