Earnings Season Insights: Navigating Trade Deals and Market Expectations

Earnings season is now well underway.

We've seen strong reports from the big banks as well as household names, including Netflix.

Now this morning we got a fresh taste of earnings from Coca-Cola and tomorrow Mag 7 reports come out from Google and Tesla.

Now the S&P 500 closed at its 10th record of the year, while the Nasdaq Composite settled.

At its 12th record of the year.

Well, joining me this morning is Chris Versace, CIO of Tomatica Research.

Chris, good morning and thank you so much for joining me.

So as earnings roll in, we can't forget about that August 1st tariffs deadline coming up.

So do you think we'll see trade deals start coming together or are markets pricing and the impact of those tariffs?

You know this morning US Treasury Secretary Scott Besson had to say that we're going to see a rash of trade deals in the next couple of days, I mean, on the one hand, That could be some positive news, but at the same time we're also seeing the European Union kind of prepare its retaliatory bazooka.

Bessen is also saying that the August 12th trade deal with China is likely to get pushed out and extended for further trade deal conversations.

This leads me to believe that the August 1st deadline could potentially underway. people and we could see tariffs ratchet higher on some key trading partners Mexico, Canada, the European Union and you know we'll have to see how that factors into what goes on with China.

So I don't think that the market is really appreciating the potential move higher and the impact on margins and earnings expectations in the second half of the year.

Yeah, and Chris, of course, this morning we're digesting the latest earnings reports, including Coca-Cola, but first Mag 7 does kick off tomorrow with Google and Tesla reporting.

So what are you paying attention to when it comes to not just the mag 7 but earnings overall?

Well, you know, Remy, you've talked about how the S&P 500 hit its 10th high of this year, the Nasdaq Composite, its 12th.

It tells us that expectations are extremely high.

Guidance has to be stronger than expected.

You know, if we take a look at what happened with, you know, American Express, we took a look at what happened last night with NXP semiconductors.

Both companies reported June quarter beats, but they only reiterated their guidance.

They did not take it higher.

And as a result, those shares have traded off and we're seeing that pattern emerge with other stocks as well.

So you know, beat and reiterate is kind of the new guide down if you want to think about it that way.

And to the extent we see more of this happen, we're going to have to see those earnings expectations for the S&P 500 in the back half of the year move lower.

And if that happens, I suspect that folks will be going hmm.

Earnings growth is slowing.

We need to maybe rethink, recalc the right PE for the market.

So that's where I think we're at.

Yeah, and of course when it comes to the earnings that we saw last week, the big banks reported strong Q2 earnings that mirrored the broader market rebounds.

So what is your take on the various sectors here?

What are you bullish on and what are you concerned about when it comes to the sectors?

Well, you know, Remy, we try to follow where the money is being spent, whether it's, you know, on the corporate side, the consumer side, or even candidly the government side of things.

And when we look at that, there's little question that AI and data center remain strong.

We saw that with Taiwan's semiconductor last week and they're.

Sized outlook for the current quarter.

So certainly that area remains very bright.

I expect that when big tech reports, whether it's, you know, Google, Meta, or whoever, they are going to reiterate their capital spending comments on AI and data center, and that will kind of reaffirm that area of the trade, but You know, consumers are trading down and if we get, you know, more tariffs, not trade deals, it means retailer margins are likely to get squeezed a little further.

So that's an area that we're staying away from and just as you just reported a moment ago about extreme weather impacting.

Um, food prices, not to mention the escalation we've seen in beef prices, we're steering clear of restaurants as well.

So that's some of the areas that we're kind of thinking about.

Maybe we'll get some opportunities depending on how stocks move, but right now that's the way we're playing it.

Yeah, you bring up an important point, Chris, because just this morning, our team here at Fintech TV were talking about the cost of dining out and when you think about the cost rising in addition to tips, that check is quite expensive, so.

When it comes to the US economy, we will be getting July flash PMI coming out.

So what key economic figures do you think the central bank is paying attention to and what do you expect to see from the Fed in 2025?

OK, so when we think about the July flash PMI report, it's going to be important.

It's the first hard read that we get on the month of July, and everybody's kind of curious about the speed of the economy, you know, we could take a look at the Atlanta Fed GDP now figures or even the New York Fed now casting ones, and they show the economy continuing to grow at a nice clip.

But remember, those are rolling forecasts that are updated as, you know, fresh economic data is had.

So headline flash PMI is going to be important, but when it comes to the Fed, everybody is very curious about the pace of job creation and what we're seeing in terms of inflation pressures.

So this report will give us the first glance at that, and then from there we'll get some reaffirming data once we move into August with ISM's July PMI data.

So As it all comes together, Remy, I know the market's expecting two rate cuts right now.

I'm kind of leaning more in the camp of potentially one, but if things change on August 1st, and by that I mean we get more tariffs than trade deals, I think the market's going to have to reassess the likelihood of any rate cuts this year.

Yeah, and Chris, last but not least, before I let you go, we have about 60 seconds here.

So in terms of what you're doing at Tamatica Research, I know you have your own thematic models.

What's doing well and what's not doing that great?

Well, you know, if we think, you know, kind of what we talked about a few minutes ago, where is the spending happening?

Where are the pain points, uh, that we're seeing in the, you know, investment landscape in the economy?

It won't surprise you, Rey.

AI model or artificial intelligence is doing well.

Um, nuclear and uranium doing extremely well on a year to date basis, and others are, are kind of performing ahead of the market, but others that are tied to discretionary spending, uh, like the luxury buying boom model, not performing as well, lagging the market.

Well, speaking of which, uh, we are just moments away from the ringing of the bell, and Walmart will be ringing the bell here at the New York Stock Exchange.

So we'll see what comes out of that.

But Chris, as always great to talk to you.

Thank you so much for joining me.

Thanks, Remy.