Earnings Season Off to a Strong Start, But Trump’s Policies Take Center Stage
The fourth quarter earnings season is shaping up to be a promising one, with many companies in the S&P 500 reporting better-than-expected results. However, the market’s focus has shifted away from earnings and towards President Donald Trump’s policies and executive orders.
Policy Over Profits
According to Ritholtz Wealth Management chief markets strategist Callie Cox, “Right now, earnings are almost the undercurrent of the stock market, and policy is taking center stage.” This sentiment is echoed in the market’s reaction to Trump’s first day in office, where the US dollar index saw its worst one-day drop in a year, leading to a rally in stocks.
Industrials and Materials Lead the Charge
The weaker dollar boosted industrials and materials, sectors that are expected to benefit from a weaker greenback. Additionally, a report on Trump’s planned $500 billion investment in private-sector artificial intelligence infrastructure sent Oracle shares soaring.
Earnings Take a Backseat
Despite the strong earnings season, investors are more focused on whether Trump will follow through on his campaign promises. According to FactSet data, the S&P 500 is pacing for 12.5% year-over-year earnings growth this quarter, which would be the best quarter for S&P 500 earnings growth in over three years.
Uncertainty Ahead
Citi US equity strategist Scott Chronert notes that while earnings reports may be solid, markets will still have to contend with building fiscal, trade, and monetary policy uncertainty. This uncertainty may lead to “noise” in company outlooks, making it difficult for investors to make informed decisions.
The Economy and Earnings Take a Backseat
The key takeaway from the current focus on Trump’s policies is that it’s all about how much they will ultimately impact the US economy and corporate profits over the next several years. Even a good outlook today could change tomorrow if Trump’s policies shift.
Stable Economy, Uncertain Future
As Cox puts it, “When there’s a lot of noise, you really have to focus on what the economy and earnings are doing, and they’re in a stable place right now. It’s just hard to say where they’re going next because of that policy fog.”
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