NEW YORK (Reuters) – With the United States and China finally formalizing import duties eye for stick, Wall Street is preparing to analyze the profits of US companies in the coming weeks in search of signs of an impact on the war commercial and if it affects the spending plans.
Investors are concerned about the trade dispute with China, the United States The largest trading partner could cause companies to delay plans for capital expenditures, which increased by the first quarter after the review of US taxes UU that included massive tax cuts for corporations.
The United States and China levied taxes on Friday on the $ 34 billion of imports from the others, which intensified the conflict and suggested there was little sign that the dispute would end soon.
Machinery, the aerospace industry and other industrial names have been among the most affected. S & P 500 industrials .SPLRCI have fallen more than 5 percent since March 1, when US President Donald Trump said he would impose heavy tariffs on steel and aluminum, while the S & P 500 .SPX has risen more than 1 percent in that period.
Following approval of the tax package, expectations were high that companies would increase not only repurchases and dividends, but capital expenditures by 2018, said Quincy Krosby, chief market strategist at Prudential Financial in Newark, New Jersey.
"What we are hearing from several CFOs is that if the commercial problem continues to dominate the headlines and creates even more uncertainty, those plans may be on hold," he said.
In the first quarter, the annual growth of S & P 500 capital spending was the highest since 2011, according to S & P Dow Jones data.
Strategists at DataTrek Research in New York said In a recent note that the "headache of primary planning" for corporate managers in the second half of the year will come from the uncertainty related to trade and tariffs.
"The main concern is the supply chain, many small parts for almost everything are manufactured in China, and there may be a real delay in manufacturing due to these tariffs … It's quite an act of balance," said Tim Ghriskey, chief investment strategist at Inverness Counsel, in New York. "For every company hurt, there is a company that receives help." So this is not negative for everyone in any way. "
Second quarter reports are launched next week, with Friday's results from JPMorgan Chase ( JPM.N ), Wells Fargo ( WFC.N ) and Citigroup ( CN ). More than 200 reports from the S & P 500 will be delivered in the next two weeks, including some of the US companies that might be left behind. caught in the middle of a US trade war with China.
Expected to include the results of Honeywell ( HON.N ), Boeing ( BA.N ), Whirlpool ( WHR.N ) and Western Digital ( WDC.O ), while the results of Caterpillar ( CAT.N ) expire on 30 July
Profit forecasts that include a possible tariff impact may even eclipse the second ones. mestrales, which analysts say could equal or surpass the year-on-year increase of 26.6 percent in the first quarter. That was the highest since the fourth quarter of 2010, according to Thomson Reuters data.
"That dominates the landscape at this time, the impact will not be on the profits already made, but it could affect the guidance that accompanies it as long as the administration offers some," said Mark Luschini, strategist investment manager of Janney Montgomery Scott in Philadelphia.
Although discretionary consumer actions have been among the best results this year, UBS analysts said import tariffs could be a concern for the retail industry.
Harley Davidson ( HOG.N ) drew attention in June when he warned of a financial cost from trade tensions, and the trade dispute in general has created uncertainty for investors struggling to value stocks in a strong moment. Corporate earnings could otherwise help lead the bull market to its tenth year.
Some investors say that much of the negative news has already had a price in the market, suggesting that stocks could win as earnings are reported.
"The profit season has the potential to attract more money to the market," said Bucky Hellwig, senior vice president of BB & T Wealth Management in Birmingham, Alabama.
Savings from the US fiscal review UU They continue to boost corporate results, he said.
The tariff impact has not yet been reflected in earnings forecasts, even though commercial tensions were also a concern for the results of the first quarter.
Estimates for second-quarter earnings growth of the S & P 500 have increased slightly since April, putting the latest forecast at around 20.7 percent, according to Thomson Reuters data. Since most companies typically exceed analysts' earnings expectations, that number is likely to increase.
But other risks to profits are also increasing, such as the increase in interest rates and the strengthening of the US dollar, which according to the strategists could be another problem in the second half of the year if it continues on the same path.
Higher costs of raw materials and labor are also on the list of earnings concerns.
Information of Caroline Valetkevitch; additional reports by April Joyner in New York; Edition of Chizu Nomiyama