The U.S. stock market is facing a crucial test next week amid a wave of corporate earnings results, as investors are tense due to the significant shift in U.S. trade policies, which has upended global economic expectations and disrupted companies' calculations.
Trump's tariffs bring pandemic scenes to mind:
Anxiety continues to dominate the markets after President Donald Trump announced on April 2 the imposition of sweeping tariffs, leading to one of the most volatile trading periods since the COVID-19 pandemic five years ago.
Despite the S&P 500 index partially recovering last week, it has retreated again this week, down 14% from its record peak in February. Although volatility levels have calmed somewhat after reaching a five-year high, they remain elevated compared to historical benchmarks.
Anticipating results from giant companies:
Attention is turning to the results of Tesla and Alphabet (the parent company of Google), two of the prominent 'Magnificent Seven' companies whose stocks have declined after two years of strong performance. Investors are looking for indicators of how these companies are affected by the volatile tariff implications.
JJ Kenahan, CEO of IG North America and head of the Tastytrade platform, said: "The outlook of CEOs has never been more important than it is now."
China at the heart of the trade battle:
Companies and investors are facing an unstable business reality, as the U.S. administration continues to negotiate with other countries. Although some major import tariffs have been suspended, the United States remains engaged in a trade battle with China, the world's second-largest economy.
Recession fears are rising:
According to a Reuters poll, expectations for the U.S. economy entering a recession next year have risen to 45%, compared to 25% the previous month.
In an earnings report that piqued market interest this week, United Airlines presented two scenarios for 2025, one indicating a sharp decline in revenues and profits in the event of an economic recession.
Julian Emanuel, head of equity and derivatives strategy at Evercore ISI, described this trend as a "roadmap" that helps make better decisions in an unreliable environment regarding future guidance.
Tesla and Alphabet in the spotlight:
Tesla is set to announce its results on April 22, amid special interest in its founder Elon Musk's strong relationship with Trump, while Alphabet will reveal details regarding its advertising spending and investments in artificial intelligence, which investors are closely watching, especially after a court ruling on Thursday found that Google illegally dominates two digital advertising markets.
All of the 'Magnificent Seven' stocks have declined in 2025, with Alphabet's stock dropping around 20%, while Tesla lost 40% of its value.
Kenahan said: "These companies have previously led market rallies, and if they are no longer able to perform, investors will question the viability of the market as a whole, especially after recent disruptions."
Boeing and other major companies' results:
Attention will also be focused on Boeing's results, following reports that China has asked its companies to stop receiving planes from the company. Major companies like IBM, Merck, Intel, and Procter & Gamble are expected to announce their results next week.
U.S. corporate profit growth expectations have significantly declined, with the S&P 500 index's earnings now expected to rise by 9.2% in 2025, compared to 14% that was forecasted at the beginning of the year, according to LSEG IBES data. Investors expect further slowing as companies' results may reflect the effects of tariffs more significantly.
Trump's statements:
Market interest is also shifting towards the Federal Reserve, after Trump stated on Thursday that the dismissal of Chairman Jerome Powell "cannot happen soon enough," calling for interest rate cuts. Powell had said the day before that the Fed needed more data before making any decision on rates.
Market volatility hasn't calmed down yet:
Investors are betting that the current earnings season may help calm the markets, as the volatility index (VIX) reached around 60 after Trump's tariff announcement, before dropping to 30.
Despite this decline, the index remains well above its historical average of 17.6, according to LSEG Datastream data.
Ayako Yoshiyuka, senior analyst at Wealth Enhancement, stated: "The index needs to drop to the mid-twenties before we can say volatility is starting to subside; if it remains at 30, it means we are still far from stability."
