We're in the early stages of quarterly earnings season.  This is the time when companies report their earnings and often offer guidance of their upcoming expectations for the future.  Earnings season is normally a time when fundamentals drive the market, after all earnings eventually culminate in stock performance. 

Maybe United Airlines is on to Something

This week, United Airlines did something quite unique by offering two outlooks.   One forecast was based on continued economic expansion, the other was guidance under an economic recession.  This is indicative of the uncertainties in today’s economy. Specifically, with “business-as-usual”, United might earn $11.50 - $13.50 / share for the year.  However, in a recession, they might earn $7 - $9 / share for the year.  This one stock could serve as a microcosm for earnings variability for the S&P 500. 

Currently, per FactSet, the S&P 500 is to earn $267.38 / share for 2025, based upon bottom-up Street consensus.  With yesterday’s close of 5282.70 on the S&P 500, the current multiple stands at 19.76, below the five-year average multiple of 19.9 and higher than the ten-year average multiple of 18.3, per FactSet.  The United outlook of $7 and $13.50 shows how one company can impact S&P 500 earnings - depending on the general state of the economy, and idiosyncratic reasons for the respective S&P 500 component. 

We often talk of investors hating uncertainty.  This is also true for corporations and company leaders.  If we’re not careful, uncertainty might cause corporate America to postpone activities until there is greater certainty and clarity.  This is concerning.

Policy not Politics

You’ve heard our mantra before:  Don’t let one’s political ideology influence their investment decisions, it rarely works out.  It remains as true today, as ever.  However, this does not mean we should bury our head in the sand and not recognize changing policies which might impact the economy, and corporate earnings. 

With United’s Guidance as our Lead… 

Using the United Airlines example, there are a number of issues which could likely impact the economy, and therefore possibly corporate earnings: 

Higher Tariffs Implemented vs the Threat of Higher Tariffs as a Negotiating Tool

Strong Dollar / Weak Dollar

Recession / Growth

Higher Inflation / Lower Inflation

Higher Oil Prices / Lower Oil Prices

Independent Central Bank(s) / Politicization of Central Bank(s)

Fed Ease / Fed Neutral / Fed Hike

These issues might result in Higher Corporate Earnings, or Lower Corporate Earnings.  To the degree that any of these issues impact corporate earnings, and /or greater instability, take note.  If higher tariffs are set in place for an extended time, it would be inflationary over the prior period and hurt the economy, resulting in a likely hit to corporate earnings.  On the other hand, if the threat of tariffs actually increases free-trade and lowers tariffs, then perhaps the economy would grow, potentially helping corporate earnings.

Many Moving Parts…

As one can see, there are many moving parts.  Normally, during earnings season, the focal point is earnings and the outlook for earnings.  Although this remains true, a number of the other issues swirling around will also be of particular significance, this earnings season.  Imagine continued volatility is in store until there is greater clarity on the tariff front.  Even so, we will continue to monitor earnings and guidance.

Happy Easter and Happy Passover…

Wishing you and yours a meaningful, relaxing, and fun holiday.  We are reminded that we have much to be thankful for. If you are reading this, please know you are on our list in which we are thankful.