Earnings & Inauguration

Photo credit NYSE

For those of you who would prefer to listen:

It’s that time again: Earnings Season. Corporate America turns in their quarterly report cards for investors to gauge fundamentals and results. It’s always refreshing to be able to sideline emotions and rhetoric so we can focus on facts.

The Street is modeling S&P 500 earnings to increase by 11.7% in Q4. That’s compared to a year ago. It is lower than the 14.5% previously expected at the start of the quarter but still would be the best growth in 3 years. Financials were expected to see the greatest growth in Q4, up 39.5%. Communications Services are next with 20.7% growth expected. Tech, Consumer Discretionary, and Utilities are also expected to deliver double-digit earnings growth.

On the flip side, Consumer Staples, Materials, Industrials, and Energy are all expected to report actual earnings declines for Q4. But the way Wall Street works, what’s more important is where you’re headed, not where you’ve been. These sectors have actually become the leaders of late. Energy has been the best performing sector so far in 2025, jumping 10% already.

Looking ahead, Wall Street is estimating 11.9% earnings growth in this current Q1 and accelerating throughout the year. The Street is forecasting 14.8% earnings growth for all of 2025. A lot is priced in. Expectations are already high.

The Big Banks always start things off. This time, these Banks had Big things to say. Double beats were reported by Bank of America, JP Morgan, Morgan Stanley, Citigroup and Goldman. The big news came from their investment banking arms which saw growth ranging from 25% to nearly 50% from a year ago. M&A is back and the Big Banks signaled a much stronger year ahead with increased deals coming giventhe new White House administration. Financials are a big beneficiary of looser regulations. The Market loves it.

Tariffs are a big area of concern and uncertainty this Earnings Season. President Trump has been blowing that horn for a while. Companies have been feverishly working on supply chain diversification and other remedies, particularly when it comes to China. The Dollar strength is another factor. A strong Dollar hurts revenues overseas. It makes American products more expensive and less attractive to foreign buyers.

It’s being reported that Trump’s incoming economic team is planning a slow ramping up of tariffs. They could come on a month by month basis. The thinking here is this gradual approach would provide leverage to negotiate while limiting a spike in inflation. What we’re hearing from our Washington sources could be a slap of tariffs by about 2-5% per month.

Corporate America is embracing the new administration with open arms. A record number of CEOs plan to attend President Trump’s inauguration Monday. They clearly want to be on Trump’s good side. $1 Million contributions have been made by Amazon, Meta, Microsoft and Google, among so many others. Apple CEO Tim Cook made a personal donation of $1 Million himself. A record $200 Million in total is expected from the business community. That’s twice what Trump received in 2017 and over 3X what Biden received in 2021.

What’s more, these Silicon Valley CEOs will reportedly be sitting on the platform with the President for the first time at an inauguration. Even the TikTok chief executive will be present, despite the likelihood the platform gets shut down over the weekend. There’s been rumors that Elon Musk or Amazon could acquire the American business line from the Chinese social media company. Bottom line, Trump is considered pro-business. The Market really likes that.

In addition, while China’s President Xi declined the invite, he is sending the highest-level Chinese official ever to attend an American Presidential inauguration. It was also reported that Trump and Xi spoke on the phone Friday, encouraging a more collaborative relationship for the global leaders rather than the adversarial one that’s been brewing. Talking is generally better than not.

Tariffs are definitely the biggest area of concern when it comes to Trump 2.0. Higher prices threaten growth. Big Tech is vulnerable here. The risk creates corporate uncertainty. Tech stocks have taken a breather. Financials and Energy have been the new leaders in this young year. The Trump administration was more supportive of the Banks and Oil companies in his first term and is expected to be so again.

The Market will be closed Monday, in honor of Dr. Martin Luther King. The focus will shift exclusively towards Washington. The Market has been bracing for President Trump’s multiple day-one pledges. It’s been reported his team is preparing 100 executive orders to be implemented immediately in a “shock and awe” campaign. Trade, Immigration, Energy and Cryptocurrencies are believed to top the list of themes. Trump reportedly plans to make crypto a national priority with a digital asset friendly set of executive orders. That said, Trump issued only one executive order on his first Inauguration Day in 2017. Several more came in the following weeks. So there’s that.

No surprise; Volatility stormed back in to start 2025. At one point, the January sell-off erased all of the post-election gains on the S&P. But stocks were in rally mode with increased optimism heading to the weekend. Despite the gains this week, the Stock Market recorded its worst election to inauguration stretch since 2009.

Get used to the choppy price action. It reflects both the growing risks and opportunities ahead in 2025. More than anything else, it’s earnings that drive stock prices. Pro-business policies with less regulations generally leads to greater profitability for Corporate America. That’s music to the Market’s ears.

Have a nice weekend. We’ll be back, dark and early on Tuesday.

Mike

The Bedell Frazier Traveling Hat

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