Is Trump Influencing Corporate Earnings Outlook?

It was a great conversation, but I hope you're feeling better and I'm glad to be back here with you.

[00:00:33] Chris Versace: Right back at you Lindsey. I, I always enjoy our time together. hopefully you will say the same.

[00:00:39] Lindsey Bell: I do.

[00:00:42] Chris Versace: it's a interesting week, right? We've got a lot of fresh economic data. We got the Fed coming, they're gonna deliver their updated set of economic projections. We've got a lot of stuff going on with the consumer. And Lindsey, I'm concerned

about the June quarter guidance. What do you say we talk all about that and much more when we come back. 

All right folks, let's get into the meat of our conversation in this episode of the What Does It Mean? podcast trying to, take all that's happening, the various data points and such, and put some, signals to the noise. Lindsey, let's, what do you say? We talk about the consumer and. I'm a little concerned about this part of the economy, Lindsey. directly, indirectly the consumers, about two thirds of the, economy here in the United States of America.

And, we've seen a disappointing February retail sales report of sorts. We've had a lot of retailers, I don't,

[00:01:41] Lindsey Bell: what, hold on, hold up.

[00:01:42] Chris Versace: Yeah, yeah.

[00:01:42] Lindsey Bell: I wouldn't call it completely disappointing.

[00:01:45] Chris Versace: Are you're gonna use, you're gonna use my own language against me, aren't you?

[00:01:49] Lindsey Bell: because I think year over year you look at that 3.1% in retail sales, that's still a decent number. I get it. It's below the historical average. It was weaker than, than the consensus estimate. But I think what we saw between January and February is a whole bunch of noise. There's some seasonality in there. There's, there is heightened uncertainty,

Among the consumer. But I think what we really saw is that you see the consumer trading off and figuring out, where they're going to spend money and they're making decisions.

[00:02:22] Chris Versace: I, think that's right. And you know you are correct, but I am correct as well. So, what does that mean? The, February retail sales report, the headline number came in, disappointing relative to what the market was looking for. But you are right as well, Lindsey, because on a year over year basis, we still saw consumers opening their wallets. But at the same time, it was really the innards of the report I think that mattered most to me. I have been concerned coming off this wash of retailer earnings with the disappointing outlook. we've gotten other data points that have said the consumer is really starting to trade down more aggressively, that they're worried about inflation and all these other polls that are out there hint that belt tightening is happening.

So when I saw that report and I said, geez, dining out fell in February. Wow, we haven't seen that in a long time. Grocery accelerated. that, that kind of tells me that yeah, this, the, belt tightening is starting to happen and almost all the categories, except for a few were down sequentially. But digital shopping was up very nicely, which, tells me that folks are leaning into that to stretch their dollars. yeah, it was disappointing. But, there are, I guess your point, Lindsey, to me would be, and I'll look to see if you say it, there's always some bright spots depending on how you look at it.

[00:03:53] Lindsey Bell: Yes, there's always reasons to find a glass half full. and what I would say is what I meant by the January and February discrepancies is like we saw a huge bounce back in online shopping, which you called out. In January that was very weak. Same with eating out. In, food and drinking places.

We saw a deceleration, a decline actually this month, but last month it was a good number. So I think that. We gotta get through the next couple months to see where the consumer really is settling because I, there are definitely puts and takes on the consumer. Consumer sentiment is nearing the mid 2022 bottom, which is an extreme level. and usually what you do see the typical relationship between consumer sentiment is, and spending is, people spend when they feel good.

And they retract their spending when they don't feel good. But that relationship has been unusual the last several years. We've actually seen the opposite happen where people have been pretty pessimistic in this post pandemic world and they've still continued to spend. So I think that this is just gonna take time to, I think we're gonna have time, we need time to figure out the real verdict on the consumer here. but of course, the things that are making them concerned that are weighing on sentiment, which is tariffs and inflation, the more, the longer the prolonged nature of the Trump administration's, stance on tariffs, that's certainly gonna weigh on consumers.

And you, I do think that will filter through to spending, but I'm not willing to call the consumer down and out just yet.

[00:05:28] Chris Versace: I'm not calling them down and out, just increasingly selective is what I would say. The only thing I would throw on top of that, Lindsey, is what we saw in the Challenger Gray, job cuts report for February that simply skyrocketed. Something like 170 plus thousand job cuts announced during the month of February.

My concern is that when we get the data from March, it's likely to be, challenging, if you will, for the consumer as well. And typically when we see, these layoffs start to happen, what, whether they're a combination of the private sector, the federal sector, like we've been seeing in the headlines, people get a little, concerned.

They tie of, they, they retrench. and the issue with that is, unfortunately, it's a little part and parcel. And you and I talked about this offline last week, this notion of the self-fulfilling prophecy, right? I'm concerned the economy is going to slow down. I will therefore slow my spending. Lo and behold, the economy actually does slow down.

[00:06:31] Lindsey Bell: Definitely. it definitely can be a self-fulfilling prophecy. I think that, too, when we look at the consumer, they are on solid financial footing, at least in the near term. I know consumer credit has gone up and that would be the number one thing a lot of people point to.

But if you look at it as a percent of income, consumer debt as a percent of income, yes it's moved higher, but it's still well below, the levels that it was even before the financial crisis, let alone the peaks then, 'cause those were abnormal numbers. so the savings rate has also, It's, below where it's historical average is.

So consumers are choosing to spend rather than save as they've, they've struggled to rebuild their rainy day emergency funds. So I'm not saying that the consumer is like, that it's all sunshines and roses, but I do think they have a bit of a cushion. And for the higher end consumer, net worth is at its, it, it hit recent records in the fourth quarter, so of course that's more high, like I said, high income consumer rather than the low end. but so I think that there's just, there's some puts and takes here that we definitely have to keep our eye on and, I'm gonna try to remain optimistic.

[00:07:48] Chris Versace: Okay, while you do that, I'm gonna take a look at some off-price retailers. Because I do think that when we factor what we're talking about, and then also that Hudson Bay, one of Canada's largest retailers, is going under Forever 21, is going into bankruptcy again. Some of these off-price retailers, Ross stores, TJ Maxx, they might have the opportunity to do some pretty selective buying that could help their margins down the line.

So I'll. If you wanna, ask me about this, next week or the week after, I will do my best to report back. but let's move on. so the other things we have going on this week. we do have this little thing called the Federal Reserve, and they're gonna have their, next policy meeting. They start Tuesday, finish Wednesday.

We'll get the policy statement at two o'clock. Powell's press release around 2:30. And I'm not expecting anything big outta that, Lindsey, but I will tell you what I am really going to focus in on is the updated economic projections by the Fed and what they say about GDP unemployment and of course,

implied number of rate cuts. I think there's room for the market to be disappointed. What do you think.

[00:09:03] Lindsey Bell: I, think you're right too. And I think that,

what's gonna be really interesting, I, to answer your question, I do think that the market will be disappointed, but I think there's an opportunity for Powell to once again sooth and potentially calm the markets. after, after, during his press conference like he did a couple weeks ago, he was. The calm and the seemingly chaotic tariff storm. Right? and, and the market reacted positively to him at comments than he made, what, is it, the New York Economic Club a couple weeks ago.

[00:09:38] Chris Versace: Yes,

[00:09:39] Lindsey Bell: and it really showed that the market could be okay with less rate cuts, higher interest rates for longer term if it means that the economy is

on, is is stabilized and moving along just fine. they're more comfortable with that than dealing with the tariff aftermath. and so

I think it's,

[00:10:01] Chris Versace: that's go ahead. the, sorry, the tariff aftermath is just, who knows how many tariffs, how long, how big. So it's that level of uncertainty. And, I think you're right about Powell. but let's set the stage though, right? So a couple minutes ago I mentioned that, Challenger job cuts report, right?

So we, we got that big number, the February ADP employment report, if I remember correctly, missed a little bit on expectations. People were concerned about the February employment report. And Powell, to your point, during those comments he made, he was like, the economy's good, economy's fine. and I think that was the tonic, if you will, the soothing ointment that, that the market needed to hear.

But at the same time though, I just don't see the Fed delivering two, three, maybe not even one rate cut this year.

[00:10:56] Lindsey Bell: So let me ask you this. Let me ask you this. Do you think that when you say that the Fed could disappoint markets, do you believe it's because they will maintain two cuts, or do you think It's because they could reduce that number rather than the market is an anticipating potentially up to three rate cuts this year.

[00:11:16] Chris Versace: I'm going to go, lemme make sure I get this right. Former latter, latter, former. I'm gonna take the latter, Chuck for 500.

[00:11:23] Lindsey Bell: Okay.

All right.

[00:11:26] Chris Versace: but, I'll say this though too. That's what I think. That to me, that's the biggest risk. But at the same time, the Fed has a number of meetings left throughout the year. is it possible that Powell's like, the Fed's gonna remain data dependent, and will continue adjust monetary policy as needed.

do I think that in that, pseudo Disney audio animatronic voice, that's likely what we're going to hear? Probably.

[00:11:51] Lindsey Bell: Yeah, I think so too. And I think the Fed doesn't have enough data to determine, to make a determination to move either way. And I think Powell had just talked about this in the past that, policy uncertainty is, it makes his job, he hasn't said this, but he, it makes his job more difficult,

which gives, them like the green light to stay pat and do nothing, actually.

[00:12:15] Chris Versace: No, you're a hundred percent, the landscape is evolving. We need to see what plays out, that, that sort of thing. And likelihood is, even if Powell does say that at this meeting, I think you and I would put our heads together and we would say, yeah, but the odds of inflation remaining sticky, potentially trending in the wrong way, that's more likely than not just given all that we've heard on the tariff, bluster front and then it, then if it comes through, that's gonna be a big issue, right?

For the fed and inflation. And, depending on what happens, it could even risk that other dirty word that folks don't like to hear, Lindsey stagflation.

[00:12:59] Lindsey Bell: Quit saying it. You keep saying it.

[00:13:02] Chris Versace: I, because it's my job to play checkers when other, sorry to play chess. Play chess when other people wanna play checkers. I've gotta think three, four moves ahead so I can position the streets pro portfolio accordingly. I just can't react week to week. You know this. Come on.

[00:13:19] Lindsey Bell: No, it's very true and that, as all investors should be looking ahead, looking around corners,

[00:13:25] Chris Versace: Right.

[00:13:25] Lindsey Bell: if you will. So yeah, you have to consider all potential outcomes.

[00:13:29] Chris Versace: Alright, with that, let's shift to our third topic. And it's one that actually has me a little concerned. That is, we're here, about two weeks until the end of the March quarter. Later this week, we'll get quarterly results from Micron, FedEx, Nike. They're gonna be important, what they have to say about the consumer, their respective end markets, the economy, and the impact of tariffs.

But Lindsey, I gotta be honest with you, I'm really concerned about the June quarter guidance that we're gonna get when the March quarter earning season heats up. You can tell me why you think I might be right. You can tell me why I might be wrong, or if you're not sure, I can tell you why I think it.

[00:14:12] Lindsey Bell: I'm going to guess first, but

[00:14:14] Chris Versace: Go ahead.

[00:14:14] Lindsey Bell: No, I do, I think you're right. Because, companies have no reason to be heroes here,

[00:14:20] Chris Versace: Correct.

[00:14:21] Lindsey Bell: to say margins are gonna continue to expand and, sales are gonna, go through the roof. They, have no reason. The name of the game, Chris, is to lower the bar and beat it.

And they're being given, the Trump administration is giving corporate CEOs, CFOs, the, the, a gift of lowering guidance. And I think it's funny, and you know where you could see it, Chris? And then I'm gonna let you explain why

you think it.

[00:14:46] Chris Versace: Sure.

[00:14:46] Lindsey Bell: But the, where I think you could see it is look at Walmart earnings, and their guidance and their outlook versus the other retailers.

'Cause retailers, is, you and I know, but for the benefit of our listeners, are always the last to report during earnings, the earnings season.

And so Walmart, like they did lower profit guidance. but it wasn't because they thought the, tariffs were gonna have this massive impact. I think it was more so that they were trying to be cautious ahead of it, but they talked about the consumer as being stable.

No change. And Then the slew of other retailers started to come out after,

after tariffs got put into place. And, the,

narrative completely changed. And so I think if you are an executive, you have no reason to, to, like I said, be the hero here.

[00:15:34] Chris Versace: totally agree with that side of the coin. let me come at it from a different one. if you look at, I think Friday's numbers from FactSet, you look at the quarterly spread of S&P 500 earnings. The second quarter of 2025 is up sequentially about 9%. That's a big number. Okay. if you looked last year.

Second quarter over first quarter, 7%, 7.1%. So you gotta sit there and you say to yourself, huh. So the economy may not be as strong as last year. We've got the uncertainty with tariffs, we've got the uncertainty with consumers, starting to pull back and you're looking for stronger earnings growth, sequentially speaking.

not really sure how you get there. and then I think about what you just said and, it really adds to my thinking that, Companies do not need to be heroes. They can certainly dial back expectations, but it's even more so Lindsey, because the second half of the year up 14% compared to the first half, last year, it was up about 10%.

So as we sit here today, what are the things that are likely to drive a re-acceleration in earnings? hard to see. The one item, potentially tax reform, but that's a late Q2 thing. Companies are not gonna be able to include that in their guidance, so I, for those reasons, and probably a few others that I could think of, my, my suspicion is that the June quarter guidance is going to disappoint in aggregate.

[00:17:07] Lindsey Bell: No, I think that's right. I think the second quarter. numbers are going to, are gonna be disappointing. but that doesn't mean that we can't see the rebound in the second half. And I also would say that it doesn't mean that second quarter growth is going to be negative. I think you'll still

[00:17:21] Chris Versace: Oh, no. I'm not saying, I'm just saying slower, slower than what the consensus is looking for. That's 9%. if it's, call it, 6%, 7%, even flat with last year, that's still gonna be a disappointment. We'll see earnings expectations come down for 2025. The market will have to readjust to that, but that, could be an opportunity.

we'll see.

[00:17:46] Lindsey Bell: and it's, the timing is interesting too, right? Because you're getting right into the seasonally weak period of the year too.

[00:17:55] Chris Versace: Are you referring to sell in May and go away, lindsey?

[00:17:59] Lindsey Bell: yes I am. and and we had Jeffrey Hirsch on here. Maybe we should bring him back, but, he, yeah, like the, it's just the timing's gonna line up. We've already got this heightened level of volatility in the market because of policy uncertainty. and so it's. The question then, Chris, becomes what is the catalyst that can stabilize or turn the market around?

[00:18:24] Chris Versace: I'll give you three potential ones and then I'll tell you what I think. So the first one would be the Fed actually doing something on the rate front, but I just, like I talked about, I don't necessarily see that on the horizon. it could be, tax cuts. We'll have to understand, exactly what those are.

Or perhaps Lindsey, all of this tariff bluster starts to go away and it's actually successful negotiations that leads to something positive. these are all things that you and I are gonna have to continue to monitor and talk about each week on the podcast because as of right now, it really doesn't look like we're gonna get that.

I'm bracing for more tariffs April 1st, April 2nd, and then more in mid-April. So we'll have to see Lindsey, we will have to see. All right folks, when we come back, Lindsey and I are gonna share what stood out to us in this week's conversation. 

All right folks. Lindsey and I are back wrapping up this week's episode of the What Does It Mean? Podcast, sharing our, I guess the cool kids Lindsey are calling it the hot takes. So what's your hot take of the week, Lindsey, from the podcast?

[00:19:32] Lindsey Bell: I think the hot take is, no change from the Fed with regards to expectations for interest rate cuts is gonna be a, a disappointment to markets. I thought you made a good point there. and then also on earnings too, the numbers are coming down, and they're likely to continue to come down further.

this is also, I'd say this is also normal part of, the process. Usually second half numbers are way too high coming in and they come down over time. But, I think too though, it also means that you need to be, vigilant about what's in your portfolio because things can change very quickly in either direction, and so I think you just need to, really be rebalanced if you aren't and take a look at your portfolio and what you own and know what you own and why.

[00:20:24] Chris Versace: I, that last part, Lindsey, you didn't say it in the main part of the conversation, but I'll say it here and now. Asking yourself, why do I own this? Should I continue to own this? What should I own? Given what looks to be ahead on the landscape? Those are the questions that you have to answer, and it's not part of being a trader,

it's part of being an active investor, right? I say all the time that, we need to continue to do the homework, revisit, positions that we own in the portfolio where people should own in their portfolio. If you get positive confirmation saying, yes, the reasons you own want to own this are still there, great.

If not, you have to start to question, think about how do I get out of these positions, whether they're individual stocks, ETFs, what have you it's not crockpot investing Lindsey, but you know what, I know I'm preaching to the choir on that.

[00:21:18] Lindsey Bell: Oh yeah. Oh yeah. What did you learn from me?

[00:21:22] Chris Versace: I just said it, the fact that you reminded everybody about that. That was a great point. I. but I also, I would also say though too, that you're, the two things I think was one was the correction that you made for me in that I wasn't calling for earnings, guidance in the second quarter to be negative, right, sequentially, I think that clarifier was much, much needed. I, appreciate you being my, little kid, bowling alley, bumper guard, so thank you very much for that.

[00:21:54] Lindsey Bell: I'm here for you. I'm here for you.

[00:21:55] Chris Versace: I, I so appreciate that Lord knows I need all the help I can get. and, with that folks, since Lindsey is so good at, pointing stuff out and sharing data and insights, if you need more from Lindsey, between now and the next podcast, march on over to, corenomics Lindsey, correct?

[00:22:14] Lindsey Bell: Clearnomics.com and find me on LinkedIn.

[00:22:18] Chris Versace: thank you Clearnomics, Clearnomics. you know what? Here's the issue, Lindsey. I think of everything you say as being core to what I think about. That's why I slipped up. I apologize for that. As for, me, folks, Chris Versace, if you need anything from me, between now and the next podcast, march on over to the Pro Portfolio at thestreet.com.

We'll be back soon.