Corporate Pessimism Surges as Trade War Uncertainty Hits Earnings

Since the global financial crisis, American corporate executives have expressed unprecedented pessimism about the economic outlook during earnings calls. This sentiment serves as a warning signal for investors trying to gauge the impact of Donald Trump's trade war on the stock market.

According to an analysis by a major U.S. bank of the current earnings season, the ratio of positive to negative comments about the macroeconomic environment has fallen significantly below the average level, and is on track to reach its lowest point since 2009. Typically, earnings season is a positive catalyst for the stock market. However, with the S&P 500 index having fallen nearly 15% from its February high, investors are bracing for the potential fallout from Trump's efforts to rewrite global trade rules. This earnings season is fraught with unprecedented risks, particularly for companies in sectors like automotive manufacturing and transportation, where profits are closely tied to economic conditions.

Some executives are struggling to quantify the impact of the White House's rapidly changing policies on their businesses. This uncertainty is adding further pressure to the U.S. stock market, which faces the risk of sliding back into a bear market due to heightened concerns about economic recession and inflationary pressures from Trump's tariffs.

"Almost every CEO is lowering their forecasts," said veteran market strategist Jim Paulsen. "The warnings from the corporate sector have intensified."

ASML Holding, a leading semiconductor equipment manufacturer, warned that it is unable to quantify the potential impact of tariff news that could disrupt the semiconductor industry. Delta Air Lines withdrew its full-year financial guidance due to uncertainty surrounding global trade, while Kimberly-Clark lowered its full-year profit outlook, citing the impact of the trade war on its costs.

Data indicates that 27% of S&P 500 companies have lowered their 2025 performance guidance so far this quarter, while only 9% have raised their outlook. Automotive manufacturers have the most pessimistic outlook, with an average reduction of around 9% in their earnings expectations for the next 12 months. In contrast, companies producing food and consumer staples, which tend to perform better during economic downturns, have raised their forecasts by more than 1%.

Companies that have lowered their performance guidance are being penalized by the market, while those that have exceeded expectations are seeing only limited rewards. According to data from a major U.S. bank, companies that have lowered their expectations have seen an average decline of 4.8% the next day, while those that have maintained or raised their expectations have seen an average increase of 1%.

As more companies avoid providing performance guidance, the market may face a potential "information vacuum," similar to the situation during the Covid-19 pandemic. This lack of visibility could exacerbate market volatility and make it more challenging for investors to make informed decisions.