Businesses consistently express apprehensions about the impending future through these two terms.
Uncertainty Reigns as Companies Avoid Forecasting
In today's economically tumultuous landscape, businesses are finding it hard to stay afloat, with the continuous back-and-forth on Trump's proposed tariffs casting a shadow over the future. Dubbed "broad reciprocal tariffs," these policies have left corporations marooned in a limbo of indecision.
The ongoing saga of uncertain tariffs has turned Corporate America into a hesitant voyager, stuck in a precarious wait-and-see mode. After Trump announced a 90-day suspension of these tariffs starting in April, businesses are bracing themselves, uncertain if this is just a temporary pause or a permanent reversal of the rough political tides.
This lack of clarity translates into corporations temporarily halting or delaying the release of their financial projections, a decision that isn't a favorable omen for our global economy. Back in the days of the Covid-19 lockdowns, many companies adopted a similar strategy to avoid releasing potentially inaccurate forecasts during such uncertain times.
This general unwillingness to commit to projections proves a challenge for analysts, who heavily rely on the financial forecasts companies provide. Moreover, these forecasts act as a vital barometer indicating the overall health of the economy - and things, unfortunately, don't seem to be looking up.
Similarly, the on-and-off trade war between the U.S. and various international partners leaves companies in the lurch, unsure about the need to drastically alter their established business frameworks.
Not only have some companies chosen to pause their projections, but others have sliced or revised them entirely. This is the first sign of the impact Trump's trade war may have on the global economic outlook.
Navigating the Raging Seas
The biggest casualty of suspended guidance may be the U.S. automotive industry. Stellantis, the parent company of brands like Jeep and Dodge, announced it would hold off on its profitable growth forecast for 2025, citing the difficulty in defining the impacts of these evolving tariff policies. This pronouncement comes after General Motors revealed it would no longer stand by its guidance for greater profits in 2025, as it hadn't accounted for potential tariff implications. Even a stalwart like Mercedes-Benz has acknowledged it will be putting its projections on ice.
The tech industry has also felt the heat, with shares of social media platform Snap dipping up to 14% when it decided to withhold its second-quarter guidance, citing uncertainty in the macroeconomic environment and its potential impact on advertising demand.
The days of post-pandemic "revenge traveling" seem to be over as well, with major airlines like American Airlines, Delta, Southwest, and Alaska Air all pulling their financial guidance for the year due to the ensuing uncertainty.
Executives at these companies have warned of potential economic recession. For instance, Delta Air Lines CEO Ed Bastian predicted that the U.S. economy could plunge into a recession, as the airline announced "growth has largely stalled." As Bastian put it, it's primarily the most price-sensitive customers, for whom travel is the most discretionary, who are avoiding air travel.
While not every company is suspending its guidance, the prevailing uncertainty seems to be convincing even the most confident corporations to tread cautiously. For example, UPS warned it might do the same soon, stating that the second half of the year is shrouded in too much uncertainty due to the looming tariffs, which could ultimately impact the U.S. consumer. Even though the consumer seems to be holding up for now, the warnings signal an ominous cloud hanging over the economy.
The Chilling Effect of Suspended Guidance
It's a significant red flag when companies opt to withdraw their financial forecasts, according to Paul Beland, the Global Head of Research at CFRA. He explained, "It raises uncertainty significantly, and that's something we're seeing a lot of." Valuations for companies in the S&P 500 may still seem high, but expectations for their earnings growth have been on a wane over the past six months.
There's a parallel between the shrunken guidance during the height of the Covid-19 pandemic and the current trade war situation - both scenarios are causing a supply chain shock that is hard to foresee. However, unlike during the pandemic era, there's no safety net in sight. While the Federal Reserve was doling out more money and the government was issuing stimulus checks during the pandemic, "we just don't have that security blanket from the Fed to come to the rescue" now, according to Beland.
Instead, we now have a government trying to cut down the deficit and a Federal Reserve still fighting inflation, leaving many companies and experts anxious about the near future.
- The ongoing uncertainty surrounding Trump's proposed tariffs, particularly the potential reinstatement of broad reciprocal tariffs in 2025, has prompted many corporations to withhold their financial projections, casting a gloomy outlook on the economy.
- The auto industry, along with tech firms and major airlines, have been significantly affected by this lack of clarity, with companies like Stellantis, General Motors, and Snap choosing to withhold their financial projections until a more certain economic outlook emerges.
- The chilling effect of suspended guidance has raised concerns, as analysts heavily rely on these forecasts to gauge the health of the economy. Experts like Paul Beland, the Global Head of Research at CFRA, have warned that the reduced expectations for earnings growth suggest a significant red flag in the market.
