The potential for an intensifying trade dispute to undercut the U.S. stock market could become clearer next week when a host of multinational companies reports quarterly results that may provide a glimpse into the impact of those global tensions.
A broad trade war scaled up a list of worries for Corporate America and equity investors after U.S. President Donald Trump imposed tariffs last month on imports of steel and aluminium. His comments and posts on Twitter about unfair behaviour by U.S. trade partners have rattled the market, which has pulled back from record highs early this year.
China has responded with tariffs of its own, leading to fears about a full-blown trade war and injecting fresh volatility into a stock market that has been more jittery over the past two months.
Of 25 U.S. companies seen by Credit Suisse as most exposed to a trade war, more than half will report their results in the coming week. They include Halliburton Co. on Monday, 3M Co. and Texas Instruments Inc. on Tuesday, Boeing Co. on Wednesday, Intel Corp. on Thursday and Chevron Corp. on Friday.
Overall, more than 180 companies in the benchmark S&P 500 index are due to report results. Some companies have already weighed in on trade tensions in the early stages of earnings season.
‘Walk a fine line’
“Management has to walk a fine line between flapping their arms and lobbying against tariffs, and presenting themselves as vulnerable to tariffs,” said Jack Ablin, chief investment officer at Cresset Wealth Advisors. Of particular concern will be executives’ views about their exposure to China, the world’s No. 2 economy and an important market for many U.S. companies.
“I’d like to know if things do deteriorate with China, how much it would affect them,” said David Joy, chief market strategist at Ameriprise.
Omar Aguilar, chief investment officer of equities at Charles Schwab Investment Management, said he expects companies to start discussing how they may alter their budget for capital expenditure “depending on the outlook of policies related to trade.”
Company comments about tariffs and trade could blemish what is expected otherwise to be a stellar earnings season, which includes the first full quarter with the recently passed U.S. corporate tax cuts. With 87 companies having reported so far, S&P 500 profits in the first quarter are expected to have increased a whopping 20%, according to Thomson Reuters data.
Trade tensions cast a shadow on an otherwise rosy report about U.S. economic growth from the U.S. Federal Reserve. In the latest “Beige Book,” the Fed’s periodic summary of contacts with businesses, the words “tariff” or “tariffs” were mentioned 36 times, compared to zero mentions in the March 7 Beige Book.
“Contacts in various sectors including manufacturing, agriculture, and transportation expressed concern about the newly imposed and/or proposed tariffs,” according to the report, which covered the period from March to early April.
Honeywell CFO Tom Szlosek called the China tariffs “a fluid situation”, and that the diversified industrial manufacturer was assessing its exposure “while also actively developing mitigation plans.”
