Beneath a solid fourth-quarter earnings season, there’s a worrisome development that may put a dent in the bull case for US stocks: Corporate America’s profit outlook is souring.
Among companies that have issued guidance for next quarter and beyond, more have provided estimates that trail analysts’ expectations. A gauge of forward earnings that compares companies’ forecasts with analysts’ projections is the lowest in a year after plunging to a level last seen in 2016 earlier this month, data compiled by Bloomberg Intelligence show.
There’s plenty of reasons for doubt. A full-fledged trade war will likely weigh on export demand and overseas profits of multinational firms. At home, inflation remains sticky and the Federal Reserve appears in no rush to cut interest rates.
“The uncertainty entering this year is as great as it has been in years and executives are trying to navigate through that with more modest guidance,” said Jim Tierney, chief investment officer of concentrated US growth at AllianceBernstein. “Fourth-quarter earnings results are strong, but it didn’t fully follow through to 2025 guidance.”
Historically, stocks tend to react more to guidance […]
Uncertainty, and the slow collapse of systems should be expected as the order of the day. This is what occurs as the empire starts to shrink. As the article states:“This is the classic dance of Wall Street analysts and company guidance, where very ambitious estimates are put in place from the sell side and companies guide them to beatable numbers,” said Patrick Armstrong, chief investment officer at Plurimi Wealth. “The big question is when will tariffs have real teeth?”
These will be the real questions as the economy is restructured. There may be an objection that because of this reorganization, the government is picking winners and losers. The dirty little secret is that the entire time the Democratic and Republican parties were disassembling the middle class the government was picking winners and losers. Why? Because Capital can move and labor cannot. If you wanted to operate a factory in the United States you were at a structural disadvantage due to low cost labor, and as a consequence you went out of business. Capital can be transferred across borders in seconds, whereas there are many barriers to labor moving to higher wage locations. Hence the problems we are having at the southern borders.
The questions will be: How long will the tariffs last? Is Trump serious? How severe will the pain be to the working class as prices rise, and the economy is restructured? Will any gains made, such as reduced defense spending, be shared with the workers? We live in interesting times.