WSJ Your Money Briefing - Navigating the Stock Market When Earnings Reports Offer Unclear Guidance

Episode Date: May 14, 2025

Trade wars between the Trump administration and other countries have made for uncertainty in the markets, with company earnings reports offering conflicting guidance. WSJ Heard on the Street columnist Jon Sindreu joins host Derricke Dennis to discuss.   Sign up for the WSJ's free Markets A.M. newsletter.  Learn more about your ad choices. Visit megaphone.fm/adchoices

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Here's your money briefing for Wednesday, May 14th. I'm Derek Dennis for The Wall Street Journal. Uncertainty over the up and down trade wars between the U.S. and other countries has left analysts and investors in limbo. Some companies are optimistic, while others are anticipating a possible recession. We saw, for example, Volkswagen announced guidance for 2025 that assumed that there were no extra tariffs, which is probably wrong too. If you assume that all of what's been announced will stay, you're probably wrong. If you assume that none of it is going to stay, you're probably wrong too. We talk with Wall Street Journal heard on the street columnist John Sindrew about where

investors can turn when earnings reports don't offer the best guidance. That's after the break. Podcasts are great because they help us make the most out of our routine. We learn about the fall of the Ottoman Empire while we drive, keep up with news while we take the dog for a walk, or turn folding laundry into a comedy show. Make the most out of your time with the PC Insider's World's Elite MasterCard, a credit card that can get you unlimited free grocery delivery and the most PC optimum points on everyday purchases. The PC Insider's World's Elite MasterCard, the card for living unlimited.

Conditions apply to all benefits. Visit PCFinancial.ca for details. Confusion around tariffs, conflicting profit outlooks from corporate giants, and the looming threat of a recession all have investors wondering what to do. Wall Street Journal heard on the street columnist John Sindrew joins me. And John, I really want to start with the recent headline about the US and China agreeing to roll back tariff increases to promote more balanced trade between the two countries.

What do you think this means for company profit outlooks? It's hard to know because the guidance that we're getting from companies is very conditional and very uncertain. So, for example, BMW said the other day when they reported their quarterly earnings that they actually expect a big chunk of the tariffs that got announced on the famous Liberation Day to be rolled back by July or mitigated through some types of offsetting policies. Of course, nobody knows that. And many equity analysts immediately pointed that out, that BMW was being pretty optimistic here.

Now we get these news that we are seeing tariffs ease when it comes to China, right after we saw also a trade deal being struck with the UK. So it makes some sense for companies to believe that not all of these tariffs are meant to stay. We saw, for example, Volkswagen announced guidance for 2025 that assumed that there were no extra tariffs, which is probably wrong too. If you assume that all of what's been announced will stay, you're probably wrong. If you assume that none of it is going to stay, you're probably wrong too. The bottom line being, it's very unclear what this means because it was unclear what the previous announcements meant. It does look like the worst-case scenario for companies

that are facing these higher import costs is not gonna happen. We still have to see not just what this means for import costs, which companies, they do have some rough estimates of what that could mean. What I think is more uncertain is if part of that extra cost gets passed to consumers, which seems very likely, how will they react? How will demand fall in response to those price increases? Now it seems more likely they will narrow. What we don't know is how much.

So what's an investor to do in the meantime? I mean, traditionally analysts look to the corporate world, corporate executives for cues on what the markets will do, but as you said, these companies and executives are sort of all over the place in terms of their forecasting. Some are optimistic, some are being a little more cautious. Where do investors go? One thing they can do is they can try and roughly see what the range is likely to be

when it comes to earnings in the future. Now, of course, valuations have been high for the past five years. So arguably one could say this could continue and it's true. But if earnings growth deteriorates even further then you would be getting to very very pricey valuations. Does that mean the stock market is about to crash again? No, but the idea that the upside from here is massive seems difficult. Of course we can always get more expensive stocks but it does seem like the market has some froth priced into it.

It's difficult to know what we have seen so far with the S&P 500, which reacted positively again to the news of the China deal, is that it's probably been driven mostly by sentiment. On bad days, it fell. When it looked like there was de-escalation, it increased. And basically we've now undone all of the losses that have happened because of these trade scares. But the question is, does this make sense? A lot of these tariffs are here to stay. We've seen this with the UK deal.

We've seen this with what's been announced in China, although obviously there's also a pause here and we don't know what will happen after the expiry period. But the direction of travel seems to be we'll have tariffs. They're just not going to be as high as perhaps some of those that were announced. And John, earlier you mentioned BMW putting out a more optimistic forecast, but on the other side, United Airlines is sort of hedging its bets, offering one scenario for a stable trade environment, and then on the other side, looking at a recession. Is that the way to go? It might be, because ultimately, if a company makes some projections on what these tariffs might do to them,

well, that's difficult to do. We don't really know which of these tariffs are here to stay or how. What United did is it's not so much about tariffs. The main concern they have is airlines are a very cyclical industry. If there is a recession or even a slowdown, they're among the first to notice it. So what they're saying is, let's assume everything's just as it's been, but let's see what would happen. What should investors expect if there was a recession? So they gave those two

earnings per share growth alternatives so investors can build a range and frankly, it makes sense right now to do this. Overall, do you think there's an end to all this uncertainty in sight? Will we have a more balanced trade overall or is a recession coming? If we look at, for example, what big brokers like Goldman Sachs have been saying, until recently, they still saw 45% of a recession over the next 12 months. It seems like a lot of these big brokers and investors were thinking about it this way. After these latest trade deals, it's likely they'll update their numbers and we'll see a slightly smaller figure.

But the point remains that a lot of these institutional players, they would still think that there is a decent chance of a recession because of all the uncertainty that's been caused by this. But also, again, when the price rises start feeding through, we might see some consumer behavior that companies won't like. And if we see that and if we see that the margin compression ends up translating into a fall in investment and eventually feeding through the labor market and we see unemployment go up, we could be in this negative feedback loop. So yes, right now the market thinks a recession is far less likely. The base case is for a slowdown, but the chance of a recession is still there. That's Wall Street Journal heard on the street columnist John Sindrew.

And that's it for your money briefing. This episode was produced by Zoe Culkin with supervising producer Melanie Roy. I'm Derek Dennis for the Wall Street Journal. Thanks for listening.