In This Article:
Southwest (LUV), American Airlines (AAL), and Alaska Airlines (AAL) are scrapping full-year forecasts, citing shaky travel demand, while PepsiCo (PEP) warns of no profit growth in 2025 due to rising supply chain costs.
Joe Brusuelas, chief economist at RSM, joins Catalysts to explain how current economic uncertainty makes accurate earnings projections nearly impossible and weighs the risks of an upcoming recession.
To watch more expert insights and analysis on the latest market action, check out more Catalysts here.
The fallout from President Trump's sweeping tariffs is making its way into earnings season. Southwest, American Airlines, and Alaska scrapping their full-year outlooks on Wednesday, blaming uncertainty and travel demand. Meanwhile, faced with higher supply chain costs, PepsiCo says it no longer sees profit growth in 2025. Meantime, Merck expecting to lose at least $200 million to tariffs. That's not including those additional farm levies here. Still with me, we have Joe Brusuelas to talk about this a little bit more. Joe, I keep hearing my sources who are markets guys telling me like, well, the earnings, it's coming in better than we thought. It's all fine. As an economist, how are you reading these earnings?
No, no, and no. Yeah. Okay, no forward guidance is the problem because the economic environment is far too uncertain to make confident projections. I forecast in with the Wall Street Journal panel. I'm on the board of UCLA forecast. Right now, you just can't do it with a measure of confidence. What you have to do is what they did at American Airlines. You talk to your investors with the adequate and appropriate measure of humility. We just can't project right now. What you're going to see though is that uncertainty real quick will extract a powerful economic cost. You're going to see orders begin to ease. Even in the durable goods orders this morning, which you saw ex transportation, of course, Boeing orders are up 139%. Ex transportation, they were flat. Again, tip of the spear. You're going to see a lot more of that going forward. So I actually, you know, when I see here a CEO say, look, it's just too uncertain, that gives me a little bit more confidence in them. I wouldn't really be talking about Q1 earnings though. That's not, I think, a good place to be right now.
Well, we got to talk about what we're seeing on the tape right now. You're looking at gains, a huge relief rally, especially in the tech stocks here. You've got your Nasdaq up nearly 1.6%, your S&P 500 up over 1%. All of this rally really gaining steam off the back of Fed speak, Governor Chris Waller saying that the job market could prompt faster than expected rate cuts. Joe, is that something for the market to rally off of or is it a sign that we're going to have a recession and then they're going to have to cut?
Yeah, there's a lot more hopium going on in the market today than I'm comfortable with. It looks to me like Governor Waller's trying to have it both ways, right? He's signaling, yeah, this is probably going to cause a recession and we might have to cut earlier. But hey, you know, the president can say whatever he wants. We're going to have our central bank independence. Oh, and by the way, the internal inconsistencies you're seeing here, that's okay. Right.
And where does that leave us in terms of the outlook for the economy?
All right. So the economy is going to slow. At best, it's going to grind to a halt. At worst, we're going to be in a recession. I think we have a very mild garden variety recession, something that goes on for six to nine months. We'd have to have a much deeper broader recession. We'd have to have more profound policy errors than the ones we already have. Look, if we're going to avoid a recession, the administration is going to have to beat a hasty retreat on the tariffs. They're going to have to find a safe, a face-saving way out of this. Right now, it doesn't appear that way. You know, the real problem, Maddie, is they can't get their story straight. Right. The internal inconsistencies across macroeconomic policy inside the administration is really what's damping financial markets and it's spilling over into the real economy. We just heard from Whirlpool and Southwest, basically telling us the same thing, right? The CEO of Whirlpool was my favorite. He's pro tariff and we're mitigating tariffs by raising prices. Okay, I'm sorry. That's not mitigation. That's raising prices and that's going to tell you what's going to happen once we get the price shock that's going to show up in the next 60 to 90 days. That's going to cause consumers to say my disposable income just turned negative. I need to pull back. Yeah. Yeah.
