Falling S&P 500 and Corporate Earnings Outlooks and More.
In a holiday-shortened trading week, it was up to the largest retailer in the U.S. to deliver some reassurance about the outlook. Sadly, Walmart did not deliver, slashing their forecast for profit for the year with the further caveat that those cuts did not take into account potential impacts of tariffs which are still too unpredictable to forecast. While CFO John David Rainey described the consumer as steady, he also said spending is far from a complete rebound following inflationary impacts.
Markets traded off on the news, and are now anxiously awaiting results from Home Depot, Target and Costco in the coming weeks to confirm that uneasy outlook. It was a bit surprising as Walmart tends to perform well in tougher economic periods, so when they are worried, so goes Wall Street. It was especially surprising because Walmart went viral during the holiday season for its knockoff $80 handbag bearing an uncanny resemblance to the iconic and exclusive Hermes Birkin bag. These luxury handbags cost anywhere from the low five figures to up to a million at auction and cannot be purchased by any mere plebian walking into a store. But lo and behold, the Walmart Birkin, or “Wirkin,” as it soon came to be called online, was an instant sellout, so much so that the company went a bit dark about its smashing success, given the knockoff was made by a third-party seller and was such a blatant copy.
For me, I always prefer the Target shopping experience, but I admit I am much more of a sucker for Joanna Gaines’ Hearth & Hand faux farmhouse home goods than a Wirkin bag. But whether you are farmhouse chic or Madison Avenue couture, the message is clear: this economy is in flux right now and trying to find its footing.
Consumers expressed their anxiety in the latest reading of the University of Michigan’s consumer confidence survey as inflation worries are clearly escalating. And despite a solid fourth-quarter earnings season, corporate America’s profit outlook is souring. Among companies that have issued guidance for next quarter and beyond, more have provided estimates that trail analysts’ expectations. Historically, stocks tend to react more to guidance than actual results, and traders reward companies that deliver better-than-expected forecasts. The big question is when and whether tariffs will have real teeth. Analysts’ outlook for all of 2025 for the S&P 500 has steadily fallen since the start of the year, now at 10% growth versus 13% in January and 15% at the very end of last year. 2026 forecasts haven’t budged, though, with analysts anticipating that profits will still climb by 14% next year..
With that, it may be a good season for stock picking, which has not been as much in vogue in recent years. But in periods like this one, when changes with tariffs and global relationships will impact some companies more than others, it might be wise to consider. Low-cost passive approaches have their place absolutely, but judicious security selection and more active strategies may allow your portfolio to play some defense in a world where markets and multiples are sky high.
I would be remiss not to address the latest idea making the rounds of a so-called “Mar-a-Lago Accord” as a way to restructure American debt. That is, that President Trump could require some of the U.S.’s foreign creditors to swap their Treasuries into ultra long-term and low interest bonds to ease the debt burden, weaken the U.S. dollar, and put us on a more even footing with the rest of the world. There is also a buzz building for a sovereign wealth fund whereby America’s allies would be asked to shoulder a larger share of security spending. While these ideas are not being attributed directly to government officials, they are rippling through markets as investors weigh the pros and cons
One idea that was directly suggested by the President and his team in statements this week was a kind of “DOGE Dividend,” or a $5,000 tax refund check sent to taxpaying households if the Musk-led agency is successful at making its $2 trillion in promised cost cuts. Those checks would also be accompanied by national debt repayments as well. However, some economists were quick to point out the impossibility of that goal, as two-thirds of the $7 trillion federal budget goes to Social Security, Medicare, defense, veterans, and interest on government debt. For now, DOGE is facing numerous court challenges, but the work continues, and Musk was on stage at the Conservative Political Action Conference wielding a chainsaw to show his commitment to these cost-cutting efforts.
On a final note, Canada stunned the USA hockey team with a 3-2 overtime win in the final game of the 4 Nations Face-Off ice hockey tournament featuring the U.S., Canada, Finland, and Sweden. “You can’t take our country — and you can’t take our game,” Canadian Prime Minister Justin Trudeau posted on X in a cross-border clapback to President Trump’s taunts about turning Canada into a 51st state. Earlier Thursday, Trump called him “Governor Trudeau.”
“Sports do not build character; They reveal it,” or so said legendary UCLA basketball coach John Wooden. Is anyone else ready for some hoops and for March Madness to begin? Only on the courts, of course, not in Washington or in the market.
Enjoy the weekend, and thanks for reading.
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