As earnings seasons go, the week ahead has a very modest lineup of companies due to report their latest quarterly results — fewer than seven S&P 500 companies are on the calendar. But even though corporate profits are running hot, the trade tariffs threaten to cool future expectations.
The second quarter is forecast to have the biggest jump in S&P 500 profits in almost eight years. Analysts estimate sales grew by the fastest pace in almost seven years. Business is humming along, but the stock market isn’t.
Over the past year the S&P 500 index is up 12 percent, while corporate earnings are forecast to have grown by 20 percent. That’s impressive enough, but that increase actually has grown in recent weeks even as the trade tension has heightened between the U.S. and our big trading partners. (One reason is better earnings from energy companies benefiting from higher oil prices.)
Corporate financial forecasts are paramount during earnings season. Uncertainty is a fact of life for business. But the trading of tariffs between the Trump administration and China, Canada and others is manufactured anxiety. In the week ahead, investors will begin hearing how the trade trouble could impact the operations of corporate America. In some cases, investors will hear how it’s already showing up.
No CEO of an American company doing business overseas, especially with China, would argue that the U.S.-China trade relationship is fair. The scales have been tipped in China’s favor for a couple of decades. Efforts by President Trump to shift the scales have upset the status quo for companies and their investors, rippling through the stock market.
According to financial data firm FactSet, S&P 500 company profits are expected to grow by almost 22 percent in the current quarter compared to a year ago. Some of that strong profit growth is conditional on strong trade.
Tariffs themselves are relatively easy to rollback. Taking back the rhetoric may not be.