Trade War Pessimism Hits U.S. Earnings Season, S&P 500 Drops 27% of Companies Lower 2025 Expectations

The earnings season for U.S. stocks is currently overshadowed by a cloud of uncertainty due to ongoing trade tensions. A recent analysis from a major U.S. bank indicates that the ratio of positive to negative comments about the macroeconomic environment during the first round of earnings calls has dropped significantly below the average level, potentially reaching its lowest point since 2009. This shift in sentiment is a stark indicator of the economic challenges that lie ahead, as companies grapple with the potential impact of tariffs and trade policies.

This pessimism is further exacerbated by the uncertainty surrounding the trade war, which has led to a significant drop in the S&P 500 index from its February high. The earnings guidance provided by companies during this season is the most pessimistic since the financial crisis. This is a clear signal to investors that the trade war could have a profound impact on corporate earnings and the broader economy. The situation is particularly concerning for sectors that are heavily reliant on global trade, such as technology and manufacturing.

Some executives are struggling to assess the impact of the White House's rapidly changing policies on their businesses. This has added further pressure to the U.S. stock market, which has seen increased risks of an economic recession and inflation due to Trump's tariffs. Senior market strategist Jim Paulsen noted, "Almost all CEOs are lowering their expectations. Corporate commentary has been upgraded to a warning level."

For instance, ASML warned that it is uncertain about the impact of potential tariffs that could disrupt the semiconductor industry. Due to global trade uncertainty, Delta Air Lines withdrew its full-year financial guidance, while Kimberly-Clark Corporation lowered its full-year profit forecast, citing uncertainty over the impact of the trade war on its costs. Data shows that so far this quarter, 27% of S&P 500 companies have lowered their 2025 expectations, while only 9% have raised them. The most pessimistic sector is automotive manufacturing, with an average reduction of about 9% in earnings expectations for the next 12 months. On the other hand, companies producing essential goods like food and consumer products, which tend to perform better during economic downturns, are among the most optimistic, with their expectations rising by more than 1%.

Companies that have lowered their earnings guidance are being penalized for it, while those that have exceeded expectations are seeing limited rewards. According to the bank's data, companies that have lowered their guidance have seen an average drop of 4.8% the next day, while those that have maintained or raised their guidance have seen an average increase of 1%. The bank predicts that as companies avoid providing guidance, there could be a potential "information vacuum," similar to what was seen during the pandemic. Cayla Seder, a macro multi-asset strategist, stated, "Given all the uncertainty, companies will face challenges in providing guidance. This means that for investors, bi-directional risks will continue to exist, and volatility may persist until tariff negotiations become more concrete."