CEOs Flag Jittery US Consumers as Global Tensions Intensify

Summary:

Data from last year showed solid growth and resilient consumer spending, and about 80% of S&P 500 Index members reporting so far have topped analysts’ expectations,

Corporate executives are warning that jittery US consumers and mounting geopolitical tensions are starting to weigh on demand as the earnings season unfolds, even as headline economic data remains resilient.

Airlines were among the first to flag the risks. Delta Air Lines Inc. said geopolitical uncertainty is clouding its profit outlook, while United Airlines Holdings Inc. warned that global tensions are beginning to hit some travel demand. Executives at consumer staples companies Procter & Gamble Co. and McCormick & Co. said shoppers remain cautious.

Signs of strain are lingering across industrial sectors. 3M Co. slid the most since April after its outlook missed estimates, with the maker of Post-it notes citing uncertainty across its consumer and auto businesses. Fastenal Co. and JB Hunt Transport Services Inc. likewise disappointed investors, pointing to uneven demand and a fragile freight market.

The increasingly downbeat commentary contrasts with many headline indicators. Data from last year showed solid growth and resilient consumer spending, and about 80% of S&P 500 Index members reporting so far have topped analysts’ expectations, according to Bloomberg Intelligence.

Still, executives say policy uncertainty and geopolitical risks are overshadowing otherwise constructive fundamentals. “It does make it much harder for management to plan,” said Steve Sosnick, chief strategist at Interactive Brokers, referring to shifting trade, fiscal and foreign policy signals. “But what CEO is going to say, ‘the policy instability coming out of the White House is making it very difficult for me to manage my business?’”

Companies are reporting earnings amid a rare mix of political disruption and global uncertainty, with stocks trading at elevated valuations after the S&P 500 posted three straight years of double-digit gains, leaving little room for error. Against that backdrop, executives are being pressed to spell out their outlook for the year ahead as President Donald Trump continues to reshape US trade relations and foreign policy.

“The environment across our key markets is marked by volatility and continued pressure from inflation, geopolitical and trade uncertainty” and the risk of rising unemployment, McCormick Chief Executive Officer Brendan Foley said on a conference call on Thursday. “Overall consumer confidence remains low.”

Shares of the spice and seasoning maker slid the most in two years after both fourth-quarter earnings and its outlook for the year fell short of expectations.

Procter & Gamble, the maker of Pampers diapers and Tide detergent, noted similar disruptions, though it expects sales will increase in the next six months. Both P&G and McCormick said sales were hurt by the government shutdown, which temporarily halted food-aid programs and weighed on lower-income consumers.

In industrials, companies pointed to lingering demand headwinds. Fastenal’s chief financial officer said the US economy “continued to send mixed signals, especially in the industrial sector.” At JB Hunt Transport Services, executives said the freight market remains shaky at the start of the year — even as immigration policy constrains labor supply, a dynamic that would typically support higher shipping rates.

Railroad CSX Corp. gave an outlook for the year on Thursday that was good enough to win investors’ favor, but the company said it doesn’t see any near-term reasons for major industrial markets to improve.

United Airlines said the US military incursion in Venezuela has had a “measurable negative impact” on Caribbean bookings, with Chief Executive Officer Scott Kirby warning that geopolitical risks could disrupt what otherwise appeared to be a strong start to the year.

The Chicago-based carrier also flagged an outsized hit from Trump’s push to cap credit-card interest rates, reflecting airlines’ deep ties to the payments industry through lucrative co-branded card partnerships — a proposal that earlier in the earnings season sent shares of financial firms lower.

At the same time, parts of Trump’s policy agenda could offer near-term relief for consumers. Investors are betting that outsized tax refunds and potential stimulus measures may help support spending among lower-income households, at least temporarily. The White House has put affordability at the center of its messaging, from the credit-card initiative to efforts aimed at forcing technology companies to shoulder rising power costs.

“It’s a midterm election year, so the rhetoric has already started to come,” said Eric Clark, chief investment officer at Accuvest Global Advisors. “Who knows if it will actually benefit consumers? It might make them feel like there’s help on the way, which ultimately helps sentiment.”

Source: Bloomberg

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