There are a number of things that could hit earnings in the next 3 or 4 quarters that we’re going to have to watch. It’s going to depend on trade.
Earnings Season Wrap-up
Based on prior estimates and resilience of estimates for the rest of the year, the LPL strategists consider the first quarter earnings a success. First quarter 2019 earnings are tracking flat versus last year. This might not sound like much, but it’s nearly 5% better than expectations back in April when the earnings season started.
The strategist also noted their takeaways from this earnings season. Among them: the stronger US dollar might have been as much as a 2% drag on earnings. Multinational companies suffered significantly more than domestic companies due to the trade dispute with China. The median company reported solid earnings. A few large companies are having an outsized impact after disappointing earnings.
Tariff Battles Continue
The US-China tariff battle is still raging. The U.S. imposed a 25% tariff on $200 billion of Chinese imports and is threatening another 25% on the remaining $300 billion. In retaliation, China imposed its own $60 billion tariff increase. Although this back and forth isn’t good for overall confidence, the LPL strategists say the U.S. economy remains on firm footing. U.S. importers pay the direct cost of tariffs, but some of those costs maybe passed to wholesalers and consumers. GDP could be hit by as much a 0.5% should all Chinese imports be hit with a tariff increase.
In theory, inflation could increase as higher costs could boost price growth. This has yet to happen as most inflation data remains tame. The LPL strategists state they do expect higher tariffs to eventually fuel higher consumer prices, especially if all China imports see higher tariffs.
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