Earnings resilience supported the market this week with nine of 10 major S&P 500 companies beating consensus EPS estimates, and eight beating revenue expectations. Broadening of the market also helped push the S&P 500 to a record high with nine of 11 S&P sectors finishing the week higher, with strength extending beyond technology into energy, utilities, financials, industrials, and real estate. However consumer concerns weighed on discretionary stocks and monthly decline in retail sales pressured retailers with Amazon and Home Depot cited among the contributors.
The major catalyst for the stock market this week was inflation. The consumer price index (CPI), which tracks changes in the prices consumers pay for a basket of goods and services, continued to move downward with headline CPI coming in at 3.4%, down from last month’s 3.5% reading and in line with expectations. Despite the decline, inflation – still above the Fed’s 2% goal, remains a challenge for households and businesses alike. However, several underlying trends continue to help support a favorable stock market – stable economy, strong earnings and continued consumer spending.
For the week, the S&P added 0.36%, while the Nasdaq climbed 0.14%, and the Dow declined by 0.56%.
Future Wealth’s View
The one aspect of strong results by US companies that may have been missed by many is that tariff refunds have materially boosted earnings in several large and small companies alike. Contrary to warnings that the refund process could be slow, many companies appear to have received the money already. So far, over 40 S&P 500 companies have reported ~$10 billion in refunds. Among the biggest refunds reported so far: Apple – $2.2 billion; Nike – $986 million; FedEx – $800 million; Amazon – $640 million; and General Motors – $500 million.
The irony is that many of these companies have had to raise prices, take a hit on the profit margins, suffer disruptions in their supply chains or go to the capital markets to raise money to pay for the tariffs – only to see the money being returned from another botched plan by the Trump administration. Instead of the trillions of dollars that Trump promised the US will receive from other countries, the reality is that the US consumer is paying higher prices for goods and services and the Treasury is now returning the ill gotten gains back to the companies.
While several companies have stated that they will share the refunds with their customers in one form or another, don’t count on it.