Market Update 28th April 2025
Unwinding Spring’s Results
1st quarter earnings season is well underway. The results we’ve had so far have been summarised relatively neatly by the fortunes of two of America’s most famous consumer goods groups, Pepsico and P&G. Each delivered reasonable numbers. However, that is perhaps not unexpected. There were relatively few concerns around in the three months to the end of March, and consumer confidence was still fairly high on the back of the ‘Trump bump’. But, as we now know, waiting around the corner was a pretty hard comedown.
Tariff tensions have brought an abrupt tightening of the US consumer’s purse strings, and even though neither Pepsico nor P&G sell particularly expensive items and each benefit from a stable of strong brands, both have bemoaned a tougher environment. Their short-term projections have consequently been revised back.
A gaggle of other groups, particularly those with a reliance on discretionary spending, have made uncomfortable noises about the short-term outlook too. Notably, three US airlines, Southwest, American and Alaska, all reported tougher conditions. Where outlook statements were issued, guidance was distinctly underwhelming. Similarly, trainers group Skechers pulled its forecasts for the year, despite only having issued projections in February. I suppose there’s only so much the endorsement of ex-Spice boy Jamie Redknapp can do amid macro uncertainty from shifts in global trade policy. Interestingly, management also spoke about wider uncertainty, and implied others will follow suit.
That was one of the key takeaways from JPMorgan’s results. CEO Jamie Dimon has seen it all before and was adamant that there will be a good dollop of conservatism in companies’ upcoming calls. He’s being proved right so far. Regardless of one’s exposure to, or view of, JPMorgan shares, his earnings calls are well worth listening to. I’ve used this column before to share my belief that JPMorgan, Visa and Walmart will tell you more about the strength of the US consumer than any number of surveys and economic forecasts could.
With all this in mind, I did a presentation last week where I said I think earnings forecasts for the US market are generally too high. I stand by that, and I believe we can expect more revisions and removals of guidance. The aim of the game now is to focus on the fundamentals.
A strong balance sheet, high margins, outstanding products and a solid track record of sensible decision-making from the leadership team are what we see as the fundamentals of a good, reliable business.
But it’s also worth thinking about the fundamentals of investing. There are very few individuals capable of timing the market consistently. With news flow seemingly dictated by which side of the bed the President gets out of, even fewer will be capable of doing it now.
Would a drop in the equity market be enough for him to change tack? He clearly takes a lot of pride in overseeing a booming stock market, but his strategy of strongarming countries and businesses into making deals by threatening uncertainty is showing some signs of working. Pharmaceutical groups have committed to well over $100bn of investment in US sites, and many others are looking at shortening supply chains too. We’re also seeing countries attempting to broker agreements over the proposed tariffs.
But there is only a 90 day hiatus on the majority of those extra tariffs in place, and that’s not a lot of time to get everything sorted just how the market would like. Almost all discussions around deadlines go to the 11th hour or beyond. If history repeats itself while companies continue issuing uncertain outlooks, it could make for a choppy period.
So is this a year to sell in May and come back on St Leger’s Day? Not necessarily. We have seen how markets can bounce quickly, and without warning. Over the last ten years, missing out on the 10 best days would have cost a portfolio around 62%. I can also confirm that volatility as measured by the VIX index has spent most of April above 30. Weekly data from the last 30 years (ie over 1,500 datapoints) show that when volatility breaches that level, 12 month returns have generally been more than double the overall average.
Instances like these demonstrate how important staying invested through volatility can be, and how supernormal returns can often turn up when you least expect it. Having said that, these examples are still not to be seen as a foolproof guide to the future.
George Salmon – Senior Research Analyst
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