SAN FRANCISCO (Reuters) – Customs tariffs are starting to hit big manufacturers, and Wall Street may reckon with caution and uncertainty among major industrial companies when a flood of reports arrive next week.
Traders work on the floor of the New York Stock Exchange (NYSE) in New York, USA, July 1
Investors are concerned about the impact on returns should the US wage a trade war China and other major trading partners are escalating. Deutsche Bank estimated in June that escalating the conflict by $ 200 billion in imports would hurt earnings growth by 1-1.5 percent.
"As today's political rhetoric intensifies and translates into a protectionist policy, it will be negative for all companies in the US and abroad, including ours," warned Hamid Moghadam, head of supply chain management company Prologis Call on Tuesday.
Manufacturers across the country are worried about Washington's recent trade policy, with some saying that uncertainty about tariffs is already affecting them, according to anecdotal evidence released by the US Federal Reserve in its Beige Book on Wednesday.
This is reflected in early reports from companies. Income from Honeywell International, General Electric and Stanley Black & Decker shows that companies are facing higher costs due to tariffs that have already come into effect and that Chinese goods threatened by Trump are distorted by $ 500 billion.
GE said he expects tariffs on his imports from China to increase his costs by as much as $ 400 million, and Alcoa said the tariffs resulted in an additional cost of $ 15 million. [
Second quarter corporate earnings begin on Monday. The results come from companies like Corning, Ford Motor, 3M Co and Boeing, which have fallen nearly 2 percent since the beginning of March.
The United States said in March that they would impose tariffs on steel and aluminum, and on July 1, Washington and Beijing applied tariffs on goods worth $ 34 billion each. Trump has threatened additional tariffs and may have targeted more than $ 500 billion worth of Chinese goods – about as much as China imported last year.
Since March 1, S & P 500's industrials have fallen almost 3 percent, reflecting the sector's reliance on international trade. The S & P 1500 index has fallen 1 percent since March 1 as investors fear that a slowdown in global demand could offset the benefits of US steelmakers versus their foreign competitors.
Many of the some 180 S & P 500 companies that release their results next week are not directly exposed to China, but could continue to cause concern.
"There are companies that are not materially affected by tariffs for cost reasons, but the uncertainty involved," said Kurt Brunner, Portfolio Manager at the Swarthmore Group in Philadelphia, Pennsylvania. "You could see customers withholding their expenses because they do not know what's going to happen."
Harley-Davidson, who said last month she would shift part of her motorcycle production abroad due to reprisals by the European Union, reports its results on Tuesday.
Qualcomm, reporting July 25, is dependent on China for two-thirds of its revenue. The US chip maker also faces a lengthy wait until the Chinese regulators approve the $ 44 billion acquisition of NXP Semiconductors. This delay is generally considered to be associated with the trade conflict.
A strong US economy and profound corporate tax cuts have led to a 5 percent rise in the S & P 500 this year, though Wall Street is worried about the impact of tariffs.
Excessive corporate tax cuts lead to S & P 500 analysts expecting a plus of 22 percent in the June quarter and 23.1 percent in the September quarter, according to Thomson Reuters I / B / E / S. Estimates for the September quarter are expected to change as companies submit their forecasts in the coming weeks.
"The market is seeing Trump's trade negotiations and leadership because of this strength, but we are more cautious on the trade surplus and believe the headline risk will remain high both up and down," wrote the chief investment officer Officer of EventShare, Ben Phillips, on Thursday in his report.
Reporting by Noel Randewich, Editing by Megan Davies