Teresa Rivas

As first-quarter earnings season kicks off, what companies report isn't as important as what they see coming next. At a time when tariffs are like temporary tattoos, investors are more eager to parse management teams' tones about a potential downturn in their forecasts.

Four major financial institutions -- BlackRock, JPMorgan Chase, Morgan Stanley, and Wells Fargo -- reported first-quarter earnings on Friday. JPMorgan, the nation's largest bank, and Morgan Stanley both delivered top- and bottom-line beats. Earnings per share at BlackRock, the world's largest asset-management firm, and Wells Fargo came in ahead of analysts' estimates, while the former's revenue was in line, and the latter's top line came in a bit light.

The S&P 500 hit a fresh high in mid-February, before trade-war fears sent markets off a cliff. The results capture some of the selloff, but they don't reflect recent weeks' frantic selling after the draconian April 2 Liberation Day tariff levels were unveiled (and later partially put on hold).

The upshot is that the first quarters themselves are little more than a footnote compared with management commentary.

When it comes to earnings results investors are often more interested in forward-looking guidance than numbers for the past quarters, but that's especially true at a time with unprecedented tariffs hanging over the markets. On the one hand, it's reassuring there weren't worrisome warnings, as companies such as Delta Air Lines and Walmart offered earlier this week, before the tariff pause: That 90-day extension may have let companies feel they had breathing room to hold off on earnings revisions -- for now -- in hopes of deals to come.

Yet on the other hand, those deals may not materialize. And it would seem that under normal circumstances, investors could have expected big banks to raise their outlooks if the rally in January and February had continued.

The problem is that management commentary pointed to plenty of ongoing concerns as flip-flopping policy hurts growth and business outlooks and the U.S.'s global standing.

BlackRock CEO Larry Fink -- who said Monday that most CEOs believe the U.S. is in a recession -- reiterated that point, and noted that capital expenditures are falling, in a CNBC interview Friday morning. He said that the market is underestimating how high inflation could spike and that the U.S. needs a trade deal with China. While the "power of U.S. capitalism" is still alive the U.S. is now acting as a destabilizing force in the world, he warned.

J.P. Morgan noted that consumer spending is holding up -- surprisingly even in the lower-income brackets -- but those figures could be deceptive, as Americans frontload spending ahead of tariff-induced inflation. Its corporate clients are taking a wait-and-see attitude, particularly smaller businesses, as few feel capable of making long-term decisions at present. CEO Jamie Dimon said that the most important thing is for trade deals to be inked as soon as possible.

By contrast, Wells Fargo said on its conference call that lower-income consumers were feeling stressed, even as overall consumer spending remained steady. "We expect continued volatility and uncertainty and are prepared for a slower economic environment in 2025, but the actual outcome will be dependent on the results and timing of the policy changes," said CEO Charles Scharf.

Morgan Stanley noted that trade tensions and weak initial public offerings have further weighed on mergers and acquisitions, and by extension the firm's IPO and advisory pipelines. Moreover, if tariffs push yields higher, that will increase borrowing costs and reduce corporate confidence.

Wednesday's 90-day tariff reprieve was a welcome development for the market, to the point that David Lefkowitz, UBS Financial Services head of equities Americas, thinks "we may have reached peak policy uncertainty."

That would be a crucial inflection point, he notes, since stocks often move lower as long as policy uncertainty is high. "So if uncertainty declines from here, it will be a key tailwind for stocks," Lefkowitz writes. "But we are clear-eyed about the path forward. Trade negotiations with U.S. trading partners will be challenging and take time. There could be setbacks along the way...CEO commentary on this point will be important in the upcoming earnings season."

In fact, consensus earnings-per-share estimates for the S&P 500 this year are still baking in double-digit growth at $267, a figure that seems too rosy, given that even modest tariffs will dent growth. Companies may sidestep lowering their full-year figures this quarter, but if agreements haven't been struck and significant clarity gained 90 days -- one quarter -- from now, it could just be kicking the can down the road.

Raymond James' Tavis McCourt argued earlier this week that the S&P 500 entered the selloff richly valued, reminiscent of the 2001 recession -- meaning there could be more pain to come -- and that investors need to forget this year and focus on 2026 earnings.

Indeed, some investors may want to look past this week's Easter celebration and skip right to Christmas.

Write to Teresa Rivas at teresa.rivas@barrons.com

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April 13, 2025 03:00 ET (07:00 GMT)

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