Key Takeaways
- Markets Remain Cautious Amid Trade Uncertainty And Earnings Season Developments
- United Airlines Offers Dual Guidance, Reflecting Economic Scenario Uncertainty
- Chip Sector Drops As Tariff Pressures Hit Nvidia And ASML
Markets were relatively quiet on Tuesday with the S&P 500 falling 0.2% and the Nasdaq Composite losing 0.05%. Small caps gained 0.1% and the Dow Jones Industrial Average dropped 0.4%. The beginning of the week has felt a lot like a hangover following last week’s volatility. I think most investors just want to get to Thursday and then the long weekend where they can finally digest the rapidly changing economy.
After the close on Tuesday, United Airlines announced better-than-expected earnings as the company swung to a profit. What was most interesting though was its forward-looking guidance. In a unique move, the company offered guidance for two different economic scenarios: one where the economy slips into recession and one where it doesn’t. I think this was a genius move on their part because it somewhat insulates the company in the immediate future. However, if their guidance under the two different scenarios misses in the next quarter, it’s possible the market could penalize them. Until then, I feel this tactic is something we’ll see other companies adopt.
Bank of America and Citigroup also announced earnings overnight. Both companies beat on profit estimates and said consumer spending in the first quarter ticked higher; however, business spending is slowing. Also, they mentioned that mergers and acquisitions activity is coming to a halt as companies try making heads or tails out of the economy. What I’m not sure about is what to make of the consumer spending portion. Since earnings are backwards looking, it could be a case of consumers wanting to make purchases before tariffs were scheduled to kick in. We’ve seen some very bearish consumer sentiment data of late which might support that idea of consumers front-running tariffs. The other scenario is that consumers are saying one thing and doing another, which wouldn’t be the first time.
As we get deeper into earnings season, we also continue contending with a trade war. China announced a policy forbidding domestic airlines from purchasing Boeing aircraft. Meanwhile, here at home, Nvidia announced they will need to obtain a new U.S. government license to in order to export their H20 chip, despite those particular chips being compliant with existing export controls. That in turn led to the company announcing they would be taking a $5.5 billion charge for H20 products. Shares of Nvidia are lower by 6.5%. Shares of ASML Holding are also down nearly 4% after that company beat on profits but missed on order expectations as a result of tariff uncertainty. That combined news has the entire chip sector down in premarket.
On the economic calendar for today, March retail sales are out Wednesday morning. According to Bloomberg, month-over-month sales were expected to increase 1.3% but came in slightly stronger at 1.4%. This supports what banks said about consumer spending, and we’ll see next month if this was a case of buying ahead of tariffs or if the economy is continuing to show strength. Also, Federal Reserve Chair Jerome Powell is speaking Wednesday at 12:15 p.m. CT in Chicago. I think most market participants are eager to hear what he has to say as the trade war continues to intensify.
For Wednesday, I’m keeping my eye on the VIX which is back up over 30. I don’t expect VIX to contract much with trade war uncertainty hanging over markets and the uncertainty of a long weekend on the horizon. Last night the Trump Administration announced it was instructing the Commerce Department to look into critical minerals as a possible further escalation of the tit-for-tat with China. That report is expected out in six months. I’m also watching Netflix. The streaming giant announces earnings after the close tomorrow. However, with markets closed on Friday, it makes trading the earnings tricky as you’ll have to wait until Monday to do anything with a Netflix position. Lastly, Friday is Good Friday and markets will be closed. I’d like to wish everyone who celebrates a Happy Easter and Happy Passover.
tastytrade, Inc. commentary for educational purposes only. This content is not, nor is intended to be, trading or investment advice or a recommendation that any investment product or strategy is suitable for any person.
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