The latest corporate earnings have taken on a significant role in the absence of key government data. With ongoing trade battles, lingering inflation, and a weakening labor market, investors are turning to quarterly results for guidance. A midseason review indicates that corporates are performing well, as seen in the positive trends in stock portfolios.
However, there is an underlying sense of concern as earnings commentary suggests that affordability issues from the previous season are still prevalent. According to RBC Capital Markets, 81% of S&P 500 companies surpassed EPS consensus, while 76% exceeded sales expectations. Although these numbers are slightly lower than before, earnings remain a strong foundation for the US equity market.
Tech companies have highlighted strengths in AI and mobile, while consumer companies have shed light on the impact of tariffs. Some companies have noted a surge in consumer purchases ahead of levies, as well as ongoing uncertainty due to tariff-related issues. Executives have described consumers as price-sensitive and value-conscious, with companies like Kimberly-Clark expressing concern about the pressure on consumers in the near future.
In addition, worsening consumer sentiment is evident in various sectors, including housing, travel, vehicle repairs, and dining out. Affordability challenges are affecting low- to middle-income customers and young adults, with the government shutdown leading to only partial SNAP payments being made.
Overall, while earnings continue to support the US equity market, there is a sense that the best part of the earnings story may be behind us. It is essential for investors to remain vigilant and adapt to the evolving economic landscape.
