What I'm Watching This Earnings Season
Earnings season begins in earnest this week with companies like $3M(MMM)$ $Tesla Motors(TSLA)$ $Alphabet(GOOG)$ $Alphabet(GOOGL)$ $Verizon(VZ)$ all reporting. This may be the most anticipated earnings season in years because it’s the first time we will hear about the impact tariffs will have on business. I’ll share what I’m watching below.
As for the market overall, we’re in what you would call a “correction” or a drawdown of over 10%. But the $S&P 500(.SPX)$ ’s 14.1% drawdown and $NASDAQ 100(NDX)$ ’s 17.1% drawdown aren’t quite “bear market” territory, which is defined as a decline of over 20%. Earnings season may give us an indication of whether the next step is higher or lower.
Earnings Season BINGO
As we scrutinize this quarter’s earnings season, here are the themes I’m watching/listening for and what you’re going to see in my coverage.
Earnings (duh)
First things first, I’ll be looking at what companies report. This may seem obvious, but remember, there are questions about whether the U.S. was already in a recession in the first quarter.
The details will differ by company, but I’m looking for revenue growth rates and margins most closely. If pricing power started to slip, it could be a canary in the coal mine.
Tariff Impacts
What’s going on with tariffs? Does anyone know?
Can we put puzzle pieces together?
Who gives a direct dollar impact?
Who is raising prices and by how much?
Maybe most importantly, who has the pricing power to pass tariff costs on and who is going to see margins shrink?
When I look at companies like On Holding, Crocs, and Mobileye, I’ll be looking for the direct impact of tariffs.
Guidance
This quarter won’t be just about guidance changing up or down. It’ll be about the details around guidance. Do companies:
Reduce guidance
Withdraw guidance
Add caveats like “if tariffs” to guidance
I’m expecting analysts to probe companies about their expectations for the year and management teams dancing a tight rope on conference calls.
Layoffs, CapEx Delays, and Other Cost Cuts
Are companies scared?
Are they cutting operating expenses or delaying capex?
Who is thinking about layoffs?
Recessions get started when everyone gets a little nervous at the same time and all companies rationally cut back spending, which reduces employment, which reduces revenue, and a downward spiral ensues.
Adjacent Impacts
If you want to know how well consumers are doing, sometimes the best place to look is with advertising companies like Google and Facebook.
Are auto companies cutting back? Mobileye will know first.
Are Canadians and Europeans cutting back travel to the U.S.? $MGM Resorts International(MGM)$ and $Airbnb, Inc.(ABNB)$ can tell us.
There are going to be a lot of adjacent and second-order impacts of tariffs and sentiment changes, and that may be the most important discussion to look for. As always, I’ll be covering all of the Asymmetric Portfolio for premium subscribers starting on Thursday.
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