Q2 Top and Bottom Lines Coming In Strong, However….

In this week’s weekly message we shared our view that earnings guidance was about take a hit, and explained why:

“With Q2 earnings reporting season now underway, and with protectionism at a modern-history high, we fully expect forward outlooks to be tempered by the unavoidable and alas palpable uncertainty that the existing, and threatened, tariff schemes can’t help but incite.”

Sure enough, per Bespoke Investment Group below, after a whole slew of reports, outlooks are net negative for the first time in 6 quarters:    click to enlarge…

The good news, however, has been that companies thus far have handily beaten Q2 estimates on both the top and bottom lines; which speaks to the positive general setup we’ve been talking about all year:
The question going forward being, how will future quarters’ earnings — and general conditions — hold up against the prevailing headwind we keep harping about herein? Or, how long will that headwind be purposely held up (yes, it’s a manufactured thing) while it chips away at what has been a hugely bullish setup?

Time will tell…

P.s. If you harbor any doubt about the seriousness of protectionism’s negative impact on earnings, the red bars below illustrate the percentage of companies mentioning “tariffs” during Q2 earnings conference calls (by sector), blue bars represent Q1:

click to enlarge…


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