Factset reported S&P 500 companies are “highly uncertain” for the balance of this year. This is well above the 10-year average of 179; and more than double the previous quarter. And it makes sense… it’s impossible to know what impact tariffs could have over the coming two to three quarters (or more). But what’s almost certain – any impact won’t be positive. We can say with certainty that tariffs (even if only 10%) are an economic burden – where I estimate the cost to both companies and consumers to be more than $300B. So who will pick up the tab?
Earnings
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What Do Q1 Earnings Tell Us?
We’re about half way through Q1 2025 earnings. So far they’re showing double-digit YoY growth. However what companies are struggling with is guidance. They have very limited visibility through the “tariff windshield”. And whilst stocks are reacting well to past earnings and optimism Trump will back down on his draconian tariffs – it’s difficult to gauge both how much damage has been done? For now, markets remain optimistic however I would treat this rally with caution.
Large Cap Tech: Cautious on Guidance
When Charlie Munger was asked the secret to his success – he answered “I’m rational.” Rational is not paying “33x forward earnings” for a company like Apple or Microsoft – despite their quality. Rational is also not selling the S&P 500 when it plunges to trade at just 16x forward earnings – because you are worried about a possible recession. Rational is adding exposure to high quality assets when they are at or below their long-term mean. And the more below the mean they trade – the stronger your (long-term) conviction should be.