Earnings and Trade War Uncertainty — Evening Brief – 04.28.25
In a volatile 2025 for financial markets, US equities and real estate investment trusts (REITs) have faced significant selling pressure, while other major asset classes have posted year-to-date gains, based on ETF performance.
While US equities and REITs struggle, the resilience of global developed market stocks highlights divergent market dynamics. Investors are closely monitoring earnings guidance and trade developments for signals of stability, but tariff risks continue to cloud near-term prospects.
The Vanguard Total US Stock Market ETF (VTI), a broad measure of US equities, has declined 6.3% this year, making it the worst-performing major asset class. US-listed REITs, tracked by the Vanguard Real Estate ETF (VNQ), are down 1.3%, the second-worst performer. Meanwhile, other major asset classes remain in positive territory.
Leading the gains are developed market stocks excluding the US, with the Vanguard Developed Markets ETF (VEA) up 10.2% year-to-date.
Optimists argue that US stocks are now undervalued after this year’s sell-off, with potential catalysts for a rebound including strong corporate earnings reports due this week and progress on trade deals to ease tariff concerns. On Sunday, US Treasury Secretary Scott Bessent suggested a potential path for tariff negotiations with China, noting that high tariffs are unsustainable for Chinese businesses. However, China maintains it can endure the trade war, showing little urgency to negotiate.
A more immediate boost for US equities could come from this week’s earnings season, with over one-third of S&P 500 companies set to report. Beating Wall Street expectations could lift stocks, though investors are more focused on forward guidance amid ongoing tariff risks.
FactSet reports that S&P 500 companies have delivered solid Q1 2025 results, with the magnitude of earnings surprises exceeding recent averages, despite fewer companies beating estimates. However, Tavis C. McCourt, institutional equity strategist at Raymond James, cautions that earnings per share (EPS) expectations may decline as companies adjust guidance to reflect tariff impacts.
“The earnings impact of all this global trade negotiation remains almost as uncertain today as two weeks ago, but despite that, equity indexes have clawed back 60% to 100% of their post-Liberation Day losses,” wrote Tavis C. McCourt, institutional equity strategist at Raymond James, in a note. “We suspect EPS expectations will continue to come down as at some point ‘pulled’ guidance will be replaced with tariff-impacted EPS.”
McCourt predicts investors may soon shift focus from 2025 EPS to 2026 recovery projections, though confidence in EPS forecasts remains months away. “Ultimately, the equity market will likely throw out 2025 EPS and start looking at 2026 EPS recovery, but we are several months or quarters before investors become confident in EPS expectations.”