Can We Trust Better-Than-Expected 1st Q Earnings?

This week, about 30% of companies that make up the S&P are reporting first-quarter earnings. While many of these companies announced better-than-expected numbers, the big question lurking over the markets is, “Can we trust 1st quarter earnings considering the implementation of global tariffs? Are these numbers relevant?” Is the honeymoon over for businesses previously optimistic that this would be the year where the regulation shackles come off, and the sky’s the limit?

This is not to discredit a good quarter of earnings, but the environment has changed. As these numbers are announced, some corporate leadership has taken the reporting moment as an opportunity to alter previous guidance or to comment on the difficulties of projecting future profits or growth.

Companies have a real balancing act when it comes to planning; is it better to have empty shelves or full shelves with limited buyers for the increased cost of goods? This unknown is a real catch-22.

While the S&P is down around 8%⁽¹⁾ this year, and the US Dollar is experiencing the largest two-month drop in 2 decades, optimism is mixed. Stocks and bonds have seen some recovery from the lows, but investors are understandably cautious. They recognize the unsure guidance and tentatively move from the sidelines, looking for buying opportunities in these asset classes. In bonds, the 10-year Treasury yielded 4.49% on 4/11, and today (4/28) yielded 4.187%, a 30-basis-point drop! In addition, some long Muni bonds have hit 5% on insured high-grade paper. This move is quite substantial for fixed-income securities and highlights the attractiveness of some of these bond levels.

While volatility is expected to remain for months, there are opportunities for those with cash on hand and an eye for value.