Earnings kicked off last week with the big banks (JPM, WFC, MS) reporting a mixed bag (record equities trading, mediocre everything else, jump in loan-loss reserves) which continued with a similar picture from Goldman this morning.
Adding to slowdown concerns, we got statements from prominent CEOs such as Jamie Dimon: “I expect more credit problems and recession is a likely outcome”; and Larry Fink: “most CEOs he talks to says we’re already in a recession.” In this context, corporate commentary will be important as policy changes likely won’t be reflected in backward looking 1Q result. Expect many companies to take advantage of this downdraft in stock prices to cut expectations and guidance as tariffs are likely to impact corporate profits and behavior.
As Goldman trader Ryan Shakey warns, keep an eye on corporate profit margins as they can be a useful indicator for recessions – when margins come under pressure, it can lead to reduced investments and increased cost cutting (jobs, etc). Goldman thinks elevated margin expectations represent the key downside risk to consensus estimates and "create the potential for large revisions in the coming quarters."
