Wall Street Breakfast
Earnings season kicks off with market in grips of tariff trauma
Sun, 06 Apr 2025
Commentary on tariffs and the consumer will be in the spotlight (0:17) March core CPI forecast to drop to annual rate of 3% (3:27) Bill Ackman calls for tariff delay. (4:46) Show Notes Earnings CalendarBill Gross warns against buying the dipEpisode transcripts: seekingalpha.com/wsb Sign up for our daily newsletter here and for full access to analyst ratings, stock quant scores, dividend grades, subscribe to Seeking Alpha Premium at seekingalpha.com/subscriptions.
Chapter 1: What are the key market concerns this week?
Welcome to Seeking Alpha's Wall Street Brunch, our Sunday look ahead to this week's market moving events, along with the weekend's top news and analysis. Hello, today is Sunday, April 6th, and I'm your host, Kim Kahn. Investors can be forgiven for looking at this week with trepidation.
Chapter 2: How have recent tariffs influenced market performance?
Following President Donald Trump's announcements of new tariffs, a risk off Thursday and Friday saw the biggest two-day round in years. The S&P 500 slumped 10.53% over Thursday and Friday, leaving it at 5,074.08 points. That level marks a 17.42% retreat from the index's most recent record close. This was the biggest two-day decrease since the S&P slid 13.93% across March 11th and 12th, 2020.
That crash came during the height of the COVID-19 pandemic and lockdowns across the globe. Going further back to 2008, the S&P notched a 12.42% fall across November 19th and 20th, 2008 in the wake of the collapse of Lehman Brothers. The FT says hedge funds are experiencing their most significant margin calls since the onset of COVID-19.
Chapter 3: What are the implications of margin calls on hedge funds?
Major Wall Street banks have demanded additional collateral from hedge fund clients whose portfolios suffered sharp declines in value. Several large institutions have issued their largest margin calls in over four years, reflecting the scale of the market dislocation.
Allianz advisor Mohamed El-Arian says the last few trading sessions were characterized by a significant reduction in levered exposures and index holdings, as well as the sale of winners to fund margin calls and actual anticipated outflows from funds. The lack of immediate policy circuit breakers have amplified the adverse technical dynamics, he said.
Unsurprisingly, the result has been a generalized and quite indiscriminate hit to asset prices from stocks to gold, with most correlations converging to one for now.
Chapter 4: What is the impact of macroeconomic factors on asset prices?
While this has created pockets of value for investors able and willing to stomach significant price volatility, the when is a much harder call given the extent of potential deleveraging still in the pipeline, especially if the direction of travel on tariffs worldwide remains retaliatory rather than de-escalating. The big question is whether traders can move past the macro and focus on the micro.
As earnings season kicks off, bulls will hope good numbers and guidance, especially on margins, can underscore the health of corporate America. But bears will be listening to earnings calls for color on how tariffs and uncertainty are expected to impact operations and whether price hikes will be passed on to consumers. Earnings kick into high gear on Friday with the banks.
Chapter 5: How might the upcoming earnings season affect market sentiment?
JPMorgan Chase, Wells Fargo, Morgan Stanley, and BNY Mellon all issue numbers before the bell. But investors may get a better insight on spending from Delta Airlines, which reports Wednesday. Airlines have already started seeing the effects of souring consumer sentiment, and the Jets ETF is well into bear market territory, down 32% from its high in late January.
This past week, Jefferies cut Delta to hold from buy, warning of depressed corporate spending. Delta lowered its top-line guidance on March 11th, and analysts now expect it to report $13.66 billion in revenue for its fiscal first quarter. On the bottom line, EPS of 44 cents is expected, with 10 analysts lowering estimates over the past three months and no analysts raising them.
Chapter 6: What insights can investors gain from Delta Airlines' earnings report?
Shares are off nearly 40% year-to-date. Also on the earnings calendar, Levi Strauss and Dave & Buster's report on Monday, Tilray Brands and RPM International issue numbers on Tuesday, Constellation Brands joins Delta on Wednesday, CarMax reports Thursday. On the economic front, it's all about inflation. The March CPI is due on Thursday.
Chapter 7: What are the expectations for the March CPI report?
The headline is expected to have risen 0.1% on the month, which would bring the annual rate down to 2.6%. The core CPI is forecast to have risen 0.3%, with the annual rate dipping to 3%. Wells Fargo economists say the abrupt change in U.S.
trade policy this week will make the March CPI feel like old news, and the details are likely to prove less encouraging than the headline as the drag from energy goods was fanned by growth concerns. Core goods inflation was already on the upswing, and services disinflation remains frustratingly slow.
Some household food staples, including egg prices, retreated over the month, but any reprieve from overall food-at-home inflation was likely more than offset by gains in other grocery categories. Even as we forecast headline CPI to come in flat month-over-month in March, the looming effects of higher tariffs look to throw a wrench into the fight against inflation.
Meanwhile, the Goldman Sachs economics team says its rule of thumb is that every one percentage point increase in the effective tariff rate raises core PCE prices by about 0.1 percentage point. They say tariffs announced here today would raise the U.S.
effective tariff rate by 18.8 percentage points, which would put the annual core PCE price index on track to jump to nearly 4.7% from the 2.8% print in February. In the news this weekend, Pershing Square Capital's Bill Ackman issued a stark warning about the economic fallout of impending tariffs, urging Trump to delay their implementation to avert a potential recession.
Ackman suggested that Trump's recent tariff threats, while effective in drawing attention to longstanding trade imbalances, may come at the cost of economic stability if enacted too swiftly. One would have to imagine that President Trump's phone has been ringing off the hook, Ackman said.
The practical reality is that there is insufficient time for him to make deals before the tariffs are scheduled to take effect. And the legal pushback is already underway on tariffs. The Wall Street Journal says that although Congress traditionally holds the power to regulate trade and impose tariffs, it has gradually delegated some of that authority to the executive branch through various laws.
Trump is now relying on the International Emergency Economic Powers Act, a 1977 statute typically used for sanctions and asset freezes, to justify the tariff hike. He's the first president to use it for imposing broad-based import taxes. Critics argue that the emergencies cited by Trump are not the kind of, quote, unusual and extraordinary threats, unquote, the law was meant to address.
Legal experts also warn that the IEEPA in this way could open the door to unchecked presidential control of a trade policy. One of the first legal challenges came this week from Simplified, a small Florida-based company that imports materials from China. It claims the tariffs are unrelated to a legitimate emergency and violate federal law.
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