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Why are so many companies pulling their guidance? · The Financial Exchange Show

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Speaker 2: Good morning, Happy Thursday, and welcome back here to the
1:13
Speaker 2: Financial Exchange. We continue to have a busy earnings week
1:17
Speaker 2: and a volatile market continuing to play out. Monday we
1:20
Speaker 2: had the substantial sell off inequities and then the rally
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Speaker 2: through Tuesday, Wednesday, and now Thursday inequities in response to
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Speaker 2: just some softer tones coming from the White House. When
1:32
Speaker 2: it comes to a number of different topics. We'll be
1:34
Speaker 2: hearing from Google parent company Alphabet today after the bell,
1:39
Speaker 2: so the kickoff of really those megacap earnings. But we've
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Speaker 2: been getting earnings from many different companies, airlines, consumer, consumer
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Speaker 2: product companies, so we'll be discussing those a little bit.
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Speaker 2: And there's a common theme running through many of these earnings,
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Speaker 2: even you know, between Procter Gamble and American Airlines when
1:57
Speaker 2: it comes to what they're doing with their forecast.
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Speaker 3: Here will be parsing that out a little bit. But
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Speaker 3: I think the main.
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Speaker 2: Topic that we're going to start with today, Paul, is
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Speaker 2: just what's going on in the White House. Obviously, you know,
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Speaker 2: anybody that's been keeping an eye on things knows that
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Speaker 2: there's been a lot of volatility in decisions, a lot
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Speaker 2: of volatility in markets in response to those decisions, and
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Speaker 2: this week the push has been a response once again
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Speaker 2: from the White House of market pressure results in calmed
2:30
Speaker 2: down wording from the White House in terms of what
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Speaker 2: is being discussed, and it raises a lot of questions
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Speaker 2: to me, which mainly around, hey, if the White House
2:42
Speaker 2: is responding to equities getting I don't know, what, were
2:45
Speaker 2: we down like twelve percent in total on Monday or
2:48
Speaker 2: something along those lines. Just how strongly are they going
2:52
Speaker 2: to respond if markets continue downwards on different policy decisions
2:57
Speaker 2: and what does that mean for the outcome of things
2:59
Speaker 2: like tear But let's start with what we know now,
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Speaker 2: which is the White House was pretty heavily criticizing the Fed,
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Speaker 2: pretty heavily criticizing or just continuing on with taris on China,
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Speaker 2: and after meeting with some business leaders as well as
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Speaker 2: probably some internal pressure from the likes of Treasury Secretory
3:18
Speaker 2: Scott Besson, has started to soften that. So what's been
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Speaker 2: the latest on those front.
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Speaker 4: Yeah, So basically what we've seen heading into this week is,
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Speaker 4: first the days are all blurned together. But either Tuesday
3:30
Speaker 4: or earlier this week, President Trump came out and sort
3:33
Speaker 4: of walked back some of his comments regarding the potential
3:36
Speaker 4: firing of Federal Reserve Chairman Jerome Powell, stating that while
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Speaker 4: he would like him to lower rates, that he is
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Speaker 4: not going to take any action to unseat him. And
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Speaker 4: that was a sigh of relief for the markets, having
3:51
Speaker 4: that stability or reinforcing this idea that Chairman Jerome Powell
3:55
Speaker 4: will continue his role, combined with the fact that you
3:58
Speaker 4: had Treasury Secretary Scott Bessant alluding to the fact that
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Speaker 4: there could be a de escalation in place between China
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Speaker 4: and the US and acknowledging both he and President Trump
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Speaker 4: acknowledging that the one hundred and forty five percent import
4:11
Speaker 4: of terif freight in place right now is just not
4:14
Speaker 4: sustainable going forward. And so those two factors combined led
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Speaker 4: to the market rally that we saw over the course
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Speaker 4: of the last couple of days. Finally acknowledgment, or not
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Speaker 4: finally but acknowledgment I guess from the Trump administration that
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Speaker 4: there needs to be a deal struck. However, tone has
4:32
Speaker 4: shifted a little bit. It seems as if heading into today,
4:35
Speaker 4: where you had China come out and say that there
4:37
Speaker 4: have been no talks thus far and we've not really
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Speaker 4: seen any progress. So it's heavily rumor mill kind of
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Speaker 4: stuff that we're parsing through this week. None of this
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Speaker 4: is concrete. It's more so parsing through what you're hearing
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Speaker 4: from the White House.
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Speaker 1: At this point.
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Speaker 2: On Monday, there were also meetings with CEOs of some
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Speaker 2: of the largest retailers out there, so Target, Walmart, Home
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Speaker 2: Depot All really I think gave a behind closed door
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Speaker 2: stark warning to the President that hey, you know, should
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Speaker 2: this continue, We're not talking about months before there are disruptions.
5:10
Speaker 2: You know, it's a matter of weeks before there are
5:12
Speaker 2: shortages on shelves of certain items, and that could be
5:15
Speaker 2: quite disruptive. But all of this comes back to I
5:18
Speaker 2: think this inherent conflict that the president has and I
5:22
Speaker 2: talked about this obviously. You and I both in our
5:27
Speaker 2: day job as financial advisors, talk to people about a
5:29
Speaker 2: whole litany of different things, and some of them are
5:33
Speaker 2: dieheard Donald Trump supporters, some of them are quite nervous
5:36
Speaker 2: about his policies.
5:37
Speaker 3: It runs the gambit.
5:38
Speaker 2: But one of the things that I've been consistently saying
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Speaker 2: throughout all this is I do believe the president genuinely
5:44
Speaker 2: cares about his legacy, and for right or for wrong.
5:48
Speaker 2: I think part of that legacy in his own view
5:51
Speaker 2: is how well does the stock market do under his tenure.
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Speaker 2: Under the first Trump administration, it was one of the
5:56
Speaker 2: better performances out of a stock market until Covid struck,
6:00
Speaker 2: and I think that that is an inherent piece of
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Speaker 2: what he views as success under his presidency, and thus
6:08
Speaker 2: far it's been the worst ninety to one hundred days
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Speaker 2: of a White House a stock market going.
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Speaker 3: Back to the nineteen twenty.
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Speaker 2: That goal at the moment, at least is kind of
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Speaker 2: inherently in conflict with the other side of this, which
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Speaker 2: is his kind of disdain for the American worker being played.
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Speaker 2: That's a quote from a political anima. Sorry, David Urban,
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Speaker 2: a former Trump political advisor. Hey, you know, these two
6:38
Speaker 2: things at the moment are at least are inherently in conflict.
6:42
Speaker 2: And the example would be, Yeah, if you are really
6:45
Speaker 2: trying to make this all about main street policy, you
6:48
Speaker 2: might do something like raise the income tax rate on
6:52
Speaker 2: millionaires in order to reduce taxes on tips, but that
6:56
Speaker 2: could also have a big impact on the stock market.
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Speaker 2: You might raise terror riffs on every country out there,
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Speaker 2: in order to force more jobs back into the United States,
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Speaker 2: but if that blows up the stock market, it is
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Speaker 2: inherently in conflict with I think how he seemingly views
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Speaker 2: his legacy, because so far, there's been a couple of instances,
7:16
Speaker 2: one in the bond market surrounding the reciprocal tariffs where
7:20
Speaker 2: things were kind of on the verge of blowing up,
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Speaker 2: and whether he felt.
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Speaker 3: Forced to step back or just chose to, he stepped.
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Speaker 2: Back from those policies in order to kind of support markets.
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Speaker 2: And then this week is well, no concrete action being taken,
7:35
Speaker 2: but seemingly some reaction to the big volatility in markets
7:41
Speaker 2: that we saw on Monday, the big downturn that we
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Speaker 2: saw then, and pretty rapidly addressing issues that investors were
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Speaker 2: continuing to express concern about.
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Speaker 4: That's what I've been having trouble with the first couple
7:53
Speaker 4: of months here, because it did seem like through his
7:56
Speaker 4: first term, stock market performance was so much a bell
7:59
Speaker 4: weather for his success, and he brought it up numerous times.
8:02
Speaker 4: The S and P five hundred, as you were alluding
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Speaker 4: to previously, was up sixty seven percent over the course
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Speaker 4: of his first term. It did do tremendously well, but
8:11
Speaker 4: I had read somewhere and again these are all just
8:13
Speaker 4: speculations that perhaps he had seen what had happened with
8:17
Speaker 4: President Biden and a stock market that actually did pretty
8:20
Speaker 4: well under Biden too. The SMP was up fifty six
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Speaker 4: percent over his tenure, twenty twenty two being a really
8:26
Speaker 4: bad year. But perhaps what he saw with the distaste
8:30
Speaker 4: that many Americans had for Biden during what was a
8:33
Speaker 4: pretty good stock market period of performance, but inflation really
8:37
Speaker 4: took a huge hit on consumers, that that's why he
8:40
Speaker 4: had shifted to thinking perhaps not putting as much importance
8:43
Speaker 4: on stock market performance. But then you have this year
8:46
Speaker 4: where some of these policies, the volatility that they've created
8:50
Speaker 4: with the market. I was surprised initially that he was
8:53
Speaker 4: continuing to be so sort of staunch in his views
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Speaker 4: on them, and now walking it back a little bit,
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Speaker 4: it seems like there is more credence to this idea
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Speaker 4: that he does want to be unaligned with Wall Street
9:06
Speaker 4: a bit. But again it's your sort of parson through,
9:08
Speaker 4: you know, yeah, trying to make your best guests.
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Speaker 2: I think one thing is clear. Investors seem to be
9:13
Speaker 2: finally taking him seriously.
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Speaker 1: Mm hmm.
9:16
Speaker 2: You know, you go to look at January and February
9:18
Speaker 2: of this year, equity markets hit all time highs as
9:21
Speaker 2: he was talking about these role out of tariffs, and
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Speaker 2: my view there was people are just not paying attention.
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Speaker 2: Either they're not paying attention or they don't believe him.
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Speaker 2: I think now investors are believing him, and the cat's
9:33
Speaker 2: kind of out of the bag and it is starting
9:35
Speaker 2: to impact, you know, everything from CEOs going out to
9:38
Speaker 2: the public and speaking very publicly against some of these policies,
9:43
Speaker 2: to you know, markets selling off into a number of
9:48
Speaker 2: different things playing out in ways that they wouldn't expect.
9:51
Speaker 2: One of them has to do with earnings, and I
9:54
Speaker 2: do want to go there. Next, we're going to take
9:56
Speaker 2: a quick break, but we've had a few pretty substantial
9:59
Speaker 2: companies report and there's been one common theme among all
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Speaker 2: of them.
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Speaker 3: We'll cover that next. Here on the Financial Exchange.
10:06
Speaker 1: Tara Fleever is in high gear. We've got the latest
10:09
Speaker 1: on what might be next and how long it might last.
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11:04
Speaker 2: Paul, what do you American Airlines, Tesla, and Procter Gamble
11:07
Speaker 2: have in common.
11:08
Speaker 4: All weakening their guidance for this These companies are publicly
11:14
Speaker 4: traded stocks.
11:15
Speaker 2: That's about all you got, but all three of them,
11:18
Speaker 2: and two of them in particular. In fact, American as
11:21
Speaker 2: well as Tesla, just removed any of their guidance, so
11:26
Speaker 2: they hold their guidance, You were correct, h Proctor Gamble
11:29
Speaker 2: weakened their overall guidance. Southwest Airlines also removed their full
11:34
Speaker 2: yer outlook. And I'm gonna you know, we've talked a
11:37
Speaker 2: fair bit about airlines and just you know what they
11:39
Speaker 2: kind of stand for in this economy, which in my
11:42
Speaker 2: view is spending from higher especially higher income Americans R right,
11:47
Speaker 2: you know, which We've cited the statistic before, and I
11:50
Speaker 2: forget who who did the data, but about half of
11:54
Speaker 2: total consumer spending right now is coming from the top
11:57
Speaker 2: ten percent of income earners. So this is an important
12:00
Speaker 2: demo for the state of the overall economy and both
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Speaker 2: American and Southwest saying, look, there is so much uncertainty
12:07
Speaker 2: here that we are pulling our estimates of how much
12:11
Speaker 2: we think we will make for twenty twenty five. And
12:15
Speaker 2: my problem with this one is American isn't affected by
12:19
Speaker 2: these terraffs.
12:20
Speaker 3: Like I'm sure you know, maybe some maybe.
12:23
Speaker 2: Some repair parts for their airplanes are going to be
12:25
Speaker 2: subject to higher prices because of these tariffs. I'm sure
12:28
Speaker 2: they import some supplies that go into repairing their air
12:31
Speaker 2: buses and Boeings that you know will be meaningfully hot
12:35
Speaker 2: or yeah, Boeing seven thirty sevens and airbus planes. But
12:40
Speaker 2: by and large, this is a story about Southwest and
12:43
Speaker 2: American telling you the investor that their customers are so
12:50
Speaker 2: nervous that they are not booking flights and they're not
12:53
Speaker 2: really sure when they are going to again, it has
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Speaker 2: to be it has to be fairly bad out there
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Speaker 2: in terms of bookings for them to just say, Nope,
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Speaker 2: we don't know how much we're going to make and
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Speaker 2: we are pulling it. That doesn't happen when bookings go
13:08
Speaker 2: down by a couple percentage points.
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Speaker 4: No, And you also had Southwest cutting back on some
13:12
Speaker 4: of their domestic flights later this year too. There are
13:15
Speaker 4: several of these companies have mentioned that they're not going
13:17
Speaker 4: to run as many routes out there, pointing directly to
13:21
Speaker 4: the demand piece that you're talking about.
13:23
Speaker 2: So through Wednesday, American Airlines stock had already tumbled forty
13:27
Speaker 2: seven percent through Wednesday, more than five times the decline
13:31
Speaker 2: of the S and P five hundred and so this
13:34
Speaker 2: continues to play out. But again, this one, to me,
13:38
Speaker 2: is such a major piece because you can look at
13:41
Speaker 2: a number of different companies and how they're affected by
13:44
Speaker 2: both tariffs as well as demand from consumers, and they'll
13:47
Speaker 2: all play out a little bit differently. Google is undoubtedly
13:50
Speaker 2: more impactful for the overall market than American Airlines is,
13:54
Speaker 2: but Google can't tell you the same things. They make
13:57
Speaker 2: so much of their revenue, most of their revenue want
14:00
Speaker 2: business to business sales that, yeah, you could get some
14:03
Speaker 2: inclination of what you know businesses are doing in terms
14:06
Speaker 2: of advertising, but this tells you right up front what
14:10
Speaker 2: wealthy consumers are doing. Because wealthy consumers as well as
14:15
Speaker 2: business flyers, fly a lot on both American and Delta.
14:20
Speaker 2: They have massive international businesses. And to see those companies
14:25
Speaker 2: basically say we're throwing our hands up, we don't know
14:27
Speaker 2: how much we're gonna be able.
14:28
Speaker 3: To make this year is a you know, shot across
14:31
Speaker 3: the bow here.
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Speaker 2: Of Hey, there's clearly some uncertainty playing out on those
14:36
Speaker 2: wealthier Americans. And again they represent half of consumer spending.
14:40
Speaker 2: And say what you want about where we might end
14:43
Speaker 2: up in terms of, you know, reshaping this country into
14:46
Speaker 2: more of a manufacturing power hub.
14:48
Speaker 3: I sure hope we do. You know, we'd be wonderful if.
14:51
Speaker 2: We are a world class manufacturer of complex goods and
14:56
Speaker 2: semiconductors and all of those things. I would love that
14:58
Speaker 2: eventual outcome. But today we're a consumer based economy. Today,
15:02
Speaker 2: the stock market and the economy and employment in this
15:05
Speaker 2: country is all based on the fact that we consumers
15:08
Speaker 2: go out and spend, not we consumers go out and
15:11
Speaker 2: make and so to see this from America as well
15:14
Speaker 2: as Southwest and now Delta has done the same definitely
15:18
Speaker 2: indicates something. Again, this could turn on a dime, right
15:22
Speaker 2: If markets go right back up and are suddenly up
15:25
Speaker 2: twenty percent three months from now, then I would be
15:29
Speaker 2: willing to bet that those same consumers start spending on
15:31
Speaker 2: international travel again. But for the time being, they are
15:34
Speaker 2: very seemingly pulling back pretty quickly.
15:37
Speaker 3: Yeah.
15:37
Speaker 4: Just the big picture statistic that is always important to
15:39
Speaker 4: keep in mind is two thirds of our economic growth
15:42
Speaker 4: comes from consumer spending, versus a country like China, for example,
15:47
Speaker 4: where forty percent of their economic growth in the first
15:49
Speaker 4: quarter was from exports. So, you know, very different makeup
15:53
Speaker 4: in terms of the economies. We are fully a consumption economy.
15:57
Speaker 2: I'm starting to hear a little bit more from business
16:01
Speaker 2: leaders on pushback, and you know, for good reasons, CEOs
16:06
Speaker 2: have been hesitant to say anything publicly. I think, you know,
16:10
Speaker 2: as you can imagine, most are probably opposed to tariffs
16:14
Speaker 2: on their goods. They're opposed to a lot of the
16:16
Speaker 2: stuff that they've heard coming out of the White House.
16:18
Speaker 2: But look, you know, you don't want to be seen.
16:21
Speaker 2: I think opposing a White House that just won a
16:25
Speaker 2: pretty landslide election, and and you know, going out there
16:30
Speaker 2: and looking for retaliation unless you're.
16:32
Speaker 3: Not afraid to mix it up.
16:33
Speaker 2: Yeah, unless you're pretty sure it's going to benefit your business,
16:36
Speaker 2: you don't want to be going and doing that. But
16:38
Speaker 2: whether it's you know, head of investment firms like Jamie
16:42
Speaker 2: Diamond and Ken Fisher who wrote, you know, big opinion
16:45
Speaker 2: pieces around the reciprocal tariffs, whether it is now these
16:49
Speaker 2: CEOs of telecom providers or others, you're seeing and hearing
16:56
Speaker 2: a fair bit more of that. And as much as
16:59
Speaker 2: we talk about, you know, what the stock market did
17:01
Speaker 2: to reverse the Trump administration's mind, I do wonder about these,
17:06
Speaker 2: you know, these public comments that you're starting to hear
17:08
Speaker 2: trickle through here and there, not on basic stuff. Right,
17:12
Speaker 2: You're not going to hear this if there's talk of
17:14
Speaker 2: renegotiating the us MCA, the you know, the North American
17:18
Speaker 2: Free Trade Agreement. But when we talked about the one
17:21
Speaker 2: hundred and forty five percent tariffs, when we talked about
17:24
Speaker 2: removing FED Jared Jerome Powell and we talked about all
17:29
Speaker 2: the reciprocal tariffs on many other countries. Those were seemingly
17:34
Speaker 2: far enough out there compared to expectations that we started
17:38
Speaker 2: to hear more CEOs say fix this or we have
17:41
Speaker 2: a real problem in terms of employment and growth and
17:44
Speaker 2: everything else. I don't know if there's really any other
17:46
Speaker 2: takeaways I have, but it stands in contrast to what
17:50
Speaker 2: we saw during the first let's call it forty five
17:53
Speaker 2: days of.
17:53
Speaker 3: The new administration.
17:54
Speaker 4: No, whoever you look at, there's just numerous companies that
17:57
Speaker 4: have reported earnings and have mentioned in tariffs during their
18:01
Speaker 4: call and the potential impact for them. So, whether you
18:03
Speaker 4: want to look at Gee Vernova who said that their
18:07
Speaker 4: cost could rise as much as four hundred million this year,
18:09
Speaker 4: Merk said two hundred million in rise and costs this
18:11
Speaker 4: year at and T and Verizon saying that headsets and
18:15
Speaker 4: wireless routers those costs could go up. So all of
18:17
Speaker 4: the executives taking a point in time in this earning
18:21
Speaker 4: cycle to mention that their business will dramatically change if
18:25
Speaker 4: there is not some result of this terror situation over
18:27
Speaker 4: the next several weeks.
18:28
Speaker 2: Here Proctor Gamble, who reported earnings before the bell today
18:32
Speaker 2: and whose stock is down about four percent in early
18:34
Speaker 2: trading so far, indicated that their organic sales this year
18:38
Speaker 2: would be approximately two percent compared to the prior year.
18:41
Speaker 2: That's down from their January estimates when they said that
18:44
Speaker 2: they were expecting that figure to increase between three and
18:47
Speaker 2: five percent over the course of the year.
18:49
Speaker 3: The sales in the most recent quarter stood.
18:51
Speaker 2: At nineteen point eight billion dollars, and so same story here,
18:55
Speaker 2: Like they are bringing down their sales expectations, even for
18:59
Speaker 2: a brand like Proctor Gamble, which you buy no matter what.
19:03
Speaker 2: But their concern to me seems to be both about
19:07
Speaker 2: increased prices due to tariffs as well as consumers that
19:10
Speaker 2: might be switching to off brand names in the face
19:14
Speaker 2: of a concern about recession.
19:15
Speaker 4: Yeah, I think it's largely a consumer story because they
19:17
Speaker 4: import only about ten percent of their goods and less
19:20
Speaker 4: than fifteen percent come from China, so it's really a
19:22
Speaker 4: story about their worried about the consumer spending.
19:25
Speaker 2: Less quick break Wall Street watches next.
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20:01
Speaker 5: All market future has told a different story this morning,
20:04
Speaker 5: but markets right now are extending gains as investors continue
20:10
Speaker 5: to monitor developments on the trade war between the US
20:13
Speaker 5: and China. Wall Street is also sifting through more corporate
20:16
Speaker 5: earnings and companies pulling their outlooks due to economic uncertainty.
20:20
Speaker 5: Right now, the Dow is up by two thirds of
20:22
Speaker 5: a percent, just over two hundred and fifty points, SMP
20:26
Speaker 5: five hundred is up one and a quarter percent, or
20:28
Speaker 5: sixty eight points, and the Nasdaq is up by one
20:31
Speaker 5: point seven percent or two hundred and ninety one points.
20:34
Speaker 5: Russell two thousand is up by nearly six tenths of
20:38
Speaker 5: a percent. Ten year treasure Field is pulling back by
20:41
Speaker 5: seven basis points so far today, now at four point
20:44
Speaker 5: three one percent, and crude oil is up about a
20:47
Speaker 5: half a percent higher, trading at sixty two dollars and
20:51
Speaker 5: sixty two cents a barrel. Travel stocks are garnering attention
20:55
Speaker 5: today after American Airlines, Southwest Airlines, in Alaska Air all
21:00
Speaker 5: withdrew their annual outlook citing macroeconomic and market uncertainty. As
21:05
Speaker 5: for its earnings, America Air posted a slightly worse than
21:09
Speaker 5: expected revenue, while Southwest beat analysts expectations, American up by
21:14
Speaker 5: one percent, Southwest edging higher, and Alaska Air is actually
21:18
Speaker 5: off by ten percent. Meanwhile, consumer goods Giant, Procter and
21:22
Speaker 5: Gamble slash its annual guidance, citing the challenging and volatile
21:25
Speaker 5: consumer and geopolitical environment. The parent company to Pampers and
21:30
Speaker 5: Tide also posted mixed quarterly results, narrowly beating on earnings
21:34
Speaker 5: but missing revenue expectations that stock down by four percent.
21:40
Speaker 5: Another consumer based company, in Pepsi, missed first quarter earnings expectations.
21:45
Speaker 5: The food and beverage company also lowered its full year outlook,
21:48
Speaker 5: citing the impact of tariffs. Pepsi down by three percent,
21:52
Speaker 5: Chipotle up by one percent, after the burrito chains that
21:55
Speaker 5: consumers are pulling back on spending, also noting that tariffs
21:59
Speaker 5: will likely drive up costs this year. Service Now jumping
22:03
Speaker 5: by fourteen percent after posting stronger than expected first quarter
22:07
Speaker 5: earnings and revenue, where it said the government's efficiency drives
22:11
Speaker 5: increased demand for its platform. Comcast retreating four percent after
22:16
Speaker 5: the cable company saw a decline in customers during the
22:18
Speaker 5: quarter but did beat earnings in revenue forecast. Texas Instruments,
22:23
Speaker 5: jumping over six percent higher after the semiconductor maker reported
22:27
Speaker 5: a double digit quarterly sales growth and offered an upbeat
22:31
Speaker 5: guidance for the current quarter, and after today's closing bell,
22:34
Speaker 5: Alphabet will unveil their first quarter results. I'm Tucker Silva
22:40
Speaker 5: and that's Wall Street Watch.
22:41
Speaker 2: So I think it's safe to say, for at least
22:43
Speaker 2: the time being, we can put to bed the concern
22:45
Speaker 2: we expressed over the course of the last few weeks
22:47
Speaker 2: regarding President Trump's possible removal of Jerome Powell at the
22:53
Speaker 2: Federal Reserve and the whiplash that markets could take the
22:57
Speaker 2: Supreme Court case that could present itself as a result
23:00
Speaker 2: of any of that. The commentary from the President over
23:03
Speaker 2: the last few days has been very much, I might
23:07
Speaker 2: disagree with you, but I'm not going to go and
23:09
Speaker 2: do that because whatever convinced him that that's not a
23:13
Speaker 2: good idea. The main piece that I think is likely
23:16
Speaker 2: to dominate headlines other than this big slew of earnings
23:19
Speaker 2: calls that we will continue to get. As a reminder,
23:21
Speaker 2: Google parent company Alphabet to the nearly two trillion dollar
23:25
Speaker 2: company will be reporting after the bell today, is going
23:27
Speaker 2: to be trade with China. As things stand today, one
23:31
Speaker 2: hundred and forty five percent tariff rates on most goods
23:34
Speaker 2: coming into the United States from China. At those rates,
23:37
Speaker 2: as we've discussed, nobody is importing anything. They are simply
23:41
Speaker 2: telling the ships to turn around and go back, because
23:44
Speaker 2: there will be very little in the way of trade
23:47
Speaker 2: that's actually conducted at tariff rates of those levels. The
23:50
Speaker 2: Wall Street Journal on Wednesday reported that administration officials are
23:53
Speaker 2: considering plans to slash tariffs on imports, and under the proposals,
23:57
Speaker 2: the ranges could come down to between mean fifty and
24:01
Speaker 2: sixty five percent. I have to say I am not
24:06
Speaker 2: sure that that moves the needle like I would take
24:09
Speaker 2: it as a positive sign we're terifs to get down
24:13
Speaker 2: to those rates. I would take it as a sign
24:15
Speaker 2: that negotiation would be more likely to happen, just as
24:19
Speaker 2: I think investors have been since Tuesday of this week that, hey,
24:23
Speaker 2: negotiation is now likely to happen. In prior instances, we
24:27
Speaker 2: weren't so sure about that. But if you are the
24:31
Speaker 2: importer of almost anything, I still think you turn away
24:35
Speaker 2: that ship and start either looking for somewhere else to
24:38
Speaker 2: source that material or just not conducting trade with China,
24:42
Speaker 2: and that still represents probably a big problem. I doubt
24:46
Speaker 2: it's big enough. I doubt that that's enough of a
24:49
Speaker 2: reconciliation for China to say, yeah, we're suddenly going to
24:52
Speaker 2: start selling our rare earth materials to the United States again.
24:55
Speaker 3: And so I'm encouraged to see that we're talking about.
24:59
Speaker 2: This, but I'm not sure that something like that is
25:02
Speaker 2: going to change the fundamentals on the ground of what
25:05
Speaker 2: we're seeing right now, which is CEOs warning the White
25:07
Speaker 2: House that we might not have products on our shelves
25:10
Speaker 2: in a few months.
25:11
Speaker 4: I was uneasy about those rates that were proposed hikes.
25:15
Speaker 4: You know, optimistic about the progress that has been made
25:20
Speaker 4: in terms of rehetic over the last couple of days,
25:22
Speaker 4: but those rates, it just.
25:23
Speaker 1: Can't be understated enough.
25:24
Speaker 4: And I was stressing this yesterday, Mike. You know, the
25:27
Speaker 4: reliance that we have on the current economic iteration on
25:31
Speaker 4: China for imports, and whether that's just pure import of
25:35
Speaker 4: goods from China or the materials that make up a
25:38
Speaker 4: lot of products that we consume or you know, utilize
25:41
Speaker 4: on a daily basis, it's a huge part of our economy.
25:45
Speaker 4: And ultimately, while the teriffs will raise revenue for the administration. Here,
25:51
Speaker 4: you and I and Tucker everyone else. The consumers are
25:54
Speaker 4: the ones who bear the brunt of those tariff impacts.
25:57
Speaker 2: And look, I feel like when we talk about tariff's
26:00
Speaker 2: on China, we all go to a few basic products
26:02
Speaker 2: like iPhones which have now been exempted for the time being,
26:06
Speaker 2: Like t shirts and sunglasses and stuff that you and
26:09
Speaker 2: I consume all the time. Go to your office if
26:13
Speaker 2: you're listening to us at work right now, or if
26:15
Speaker 2: you're listening to us at home, go to your home
26:16
Speaker 2: office and just start picking up items.
26:18
Speaker 3: How many of them are made in China.
26:20
Speaker 2: Frankly, I don't know that it's the right approach, but
26:24
Speaker 2: I don't really care about that stuff, Like you know
26:26
Speaker 2: the fact that my Yetti mug is made in China. Yeah,
26:30
Speaker 2: designed in Texas, made in China, Like, Okay, if we
26:33
Speaker 2: want to slap one hundred percent tariff on that, I'm
26:35
Speaker 2: pretty sure we can manage to make a YETI.
26:38
Speaker 3: Mug somewhere else.
26:39
Speaker 2: The problems that this poses are the semiconductors. They are
26:45
Speaker 2: the intricate magnet technology that China has a.
26:49
Speaker 3: Near monopoly on.
26:51
Speaker 2: They are the rare earth materials that go into pretty
26:55
Speaker 2: much all of our defense manufacturing that without those items,
27:00
Speaker 2: there's real questions about how some major companies continue to exist.
27:04
Speaker 2: So do I care that, you know, there's a one
27:07
Speaker 2: hundred percent tariff on a YETI mug no, probably not.
27:10
Speaker 2: Some company out there is going to care quite a bit.
27:13
Speaker 2: I do care that suddenly, you know, Raytheon cannot import
27:19
Speaker 2: whatever crazy material they need in order to manufacture the
27:23
Speaker 2: next defense weapon that suddenly cannot be made anymore. I
27:27
Speaker 2: care that the magnet technology that goes into all sorts
27:31
Speaker 2: of bottling plants and car manufacturers cannot come into the
27:36
Speaker 2: United States anymore because of these export restrictions that are
27:40
Speaker 2: again not apples to apples in terms of Chinese retaliation,
27:45
Speaker 2: but ways in which they know they can hurt us too,
27:49
Speaker 2: because look, there's plenty.
27:50
Speaker 3: Of other buyers out there for this stuff. So we
27:53
Speaker 3: will see where this develops.
27:54
Speaker 2: But the response from China has not been terribly encouraging either,
28:00
Speaker 2: since you know, again it's only been three days here,
28:02
Speaker 2: but the wording coming out of China has been drop
28:07
Speaker 2: everything and then we're happy to talk, not oh well,
28:10
Speaker 2: this is encouraging.
28:11
Speaker 3: Let's let's see what comes of it.
28:13
Speaker 4: Yeah, it's it's gonna be quite a standoff, and we'll continue.
28:18
Speaker 2: It'll be it'll be the only thing that dominates for
28:20
Speaker 2: the time being. You know, I know there's stuff around taxes.
28:23
Speaker 2: I know there's stuff around doze and spending cuts, and
28:27
Speaker 2: all of those are interesting and would normally be what
28:29
Speaker 2: we are talking about. Earnings, fascinating stuff that we would
28:33
Speaker 2: normally be covering. Frankly, you know, Google's earnings kind of
28:36
Speaker 2: take a back seat until we have more certainty around
28:39
Speaker 2: this because it is so much more.
28:41
Speaker 4: It's funny. I was doing a call earlier with Vinnie Penn,
28:43
Speaker 4: one of our socials down in Newham in Connecticut, and
28:46
Speaker 4: I said that exact same thing. I think this is
28:47
Speaker 4: just going to dominate our show for a long period time.
28:50
Speaker 4: He goes, don't you guys have anything else to talk
28:53
Speaker 4: about on the program? I said, Vinnie, Ultimately, at this point,
28:56
Speaker 4: this is kind of the end all be all, so
28:58
Speaker 4: we'll continue to cover it because from an economic perspective,
29:01
Speaker 4: it's the biggest story.
29:02
Speaker 2: Well, my my internal clock is all messed up because
29:05
Speaker 2: I was on a plane this morning. So I am
29:07
Speaker 2: going to take a break from tariff talk. We're going
29:09
Speaker 2: to talk Chipotle next on the Financial Exchange, the.
29:13
Speaker 1: Global trade war has royal markets and a recession could
29:16
Speaker 1: be next. Keep it here for breaking business news and
29:19
Speaker 1: complete market updates on the Financial Exchange Radio Network. The
29:24
Speaker 1: Financial Exchange is now available on your Alexis smart speaker
29:27
Speaker 1: has to play the Financial Exchange and catch up on
29:30
Speaker 1: anything you might have missed. This is the Financial Exchange
29:33
Speaker 1: Radio Network.
29:44
Speaker 2: So, Paul, when I think about the spring season, I
29:48
Speaker 2: usually think of it as housing season. It's where it's
29:51
Speaker 2: where everybody lists their home for sale. We see a
29:53
Speaker 2: dramatic uptake in inventory. But if you're an executive at Chipotle,
29:58
Speaker 2: it's what you call burritos. And because for whatever reason,
30:02
Speaker 2: the busiest time of the year for the chain is
30:04
Speaker 2: from Easter through May, I'm thinking it's a combination of
30:09
Speaker 2: Cinco de Mayo plus busy college students who are studying
30:14
Speaker 2: for exams and don't have time to cook anything. Because
30:17
Speaker 2: they do point to sales slowing during the summer months
30:20
Speaker 2: when college students return home and many customers are traveling.
30:25
Speaker 2: But in any case, it is prime time right now
30:28
Speaker 2: for Chipotle, and they too are not seeing the greatest
30:33
Speaker 2: results out there. And I was in my mind trying
30:35
Speaker 2: to kind of put together how we categorize Chipotle's sales,
30:40
Speaker 2: because when I think of one of their main competitors, McDonald's,
30:44
Speaker 2: I look at McDonald's sales and say, okay, this is
30:49
Speaker 2: kind of a bell weather for consumers turning to the
30:53
Speaker 2: cheaper option. Not many places and you get a cheaper
30:57
Speaker 2: menu item than McDonald's. Maybe Burger and a few others,
31:00
Speaker 2: but McDonald's is the big, publicly traded one alongside Walmart,
31:04
Speaker 2: where I can say, hey, if people are getting budget conscious,
31:07
Speaker 2: they're gonna shop at these places more. I do not
31:10
Speaker 2: believe Chipotle occupies that space. I believe that Chipotle is
31:14
Speaker 2: much more of a upper end, discretionary income type brand,
31:18
Speaker 2: But I don't know. It certainly doesn't occupy the same
31:22
Speaker 2: place as Delta Airlines. I guess, oh.
31:24
Speaker 4: No, definitely not. This is their first same store sales
31:28
Speaker 4: decline since twenty twenty that they've experienced here. They've just
31:30
Speaker 4: had a tremendous run in terms of their sales growth,
31:33
Speaker 4: and ultimately I was going through the pricing on it
31:38
Speaker 4: actually during the break, you know, to put together a breedable.
31:40
Speaker 4: It comes in around fourteen or fifteen bucks but I
31:44
Speaker 4: was talking with friends over the weekend. It's pretty comparable
31:46
Speaker 4: that it seems like if you go out to a
31:48
Speaker 4: regular lunch place like not the McDonald's of the world,
31:51
Speaker 4: but that's kind of where you're falling in that fourteen
31:53
Speaker 4: to fifteen dollars range. But it's something that from a
31:55
Speaker 4: discretionary standpoint, you can look at your own budget as
31:58
Speaker 4: a household and say, do I really need to go
32:01
Speaker 4: out and buy that, And it seems like maybe that's
32:04
Speaker 4: part of the reason for the slowdown. They do import
32:06
Speaker 4: a lot of avocados from Mexico, but they're not really
32:10
Speaker 4: impacted by some of the tariff talk that we've had.
32:13
Speaker 2: Yeah, I remember talking about that early on a few
32:15
Speaker 2: months ago, but that's largely died down and I don't
32:18
Speaker 2: think as big a threat to Chipotle's.
32:20
Speaker 4: So again, it's a sales issue like we talked about
32:22
Speaker 4: with some of these other companies, Procter and Gamble and others.
32:25
Speaker 4: And it does seem like the general feedback that I'm
32:28
Speaker 4: getting talking with with clients and other individuals out there,
32:31
Speaker 4: a lot of pause and uneasiness on just hey, I'm
32:35
Speaker 4: gonna hold off on that vacation. I'm going to hold
32:37
Speaker 4: off on that housing project. I'm not sure if you're
32:40
Speaker 4: getting the same sort of vibe, but I'm.
32:42
Speaker 2: Hearing the same thing, Paul. But here's where I continue
32:45
Speaker 2: to struggle is we're very much in this New England bubble,
32:49
Speaker 2: and most people who are listening are very much in
32:50
Speaker 2: this New England to bubbles as well. And I don't
32:53
Speaker 2: know that that same thing is playing out in other
32:56
Speaker 2: parts of the country, right. I mean, for a number
32:58
Speaker 2: of different reasons. If you live and work in New England,
33:01
Speaker 2: You're probably more likely to be on working for the
33:06
Speaker 2: healthcare sector, where some of your contracts may be subject
33:10
Speaker 2: to DOGE infrastructure cuts. You're more likely to be working
33:13
Speaker 2: in education, where Harvard University is, you know, going through
33:17
Speaker 2: all sorts of funding issues as well, and so and
33:22
Speaker 2: as a region just trends far more liberal than almost
33:25
Speaker 2: all the rest of the country. And so is what
33:27
Speaker 2: we are hearing from people much more a reaction to
33:33
Speaker 2: those factors, or is this something that is playing out
33:36
Speaker 2: nationally And the evidence seems to be piling up more
33:39
Speaker 2: and more in the camp of no, this is playing
33:42
Speaker 2: out nationally, because otherwise, you know, American Airlines is not
33:46
Speaker 2: a New England regional airline. Chipotle is not a regional
33:52
Speaker 2: restaurant like ground Roundise, and so I tend to think
33:56
Speaker 2: that what you are hearing is correct and it's not.
33:59
Speaker 3: It might be exacerbation in the New England area.
34:00
Speaker 2: It might be exacerbated in DC where people are really
34:03
Speaker 2: worried about their jobs, even if they're not employed by
34:05
Speaker 2: the government. But it seems to be playing out nationally
34:11
Speaker 2: across the board, this general concern about what is to
34:15
Speaker 2: come next, both in terms of the stock market and employment.
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35:23
Speaker 2: Generally speaking, for the last fifty or so years, with
35:27
Speaker 2: a few exceptions, the dollar has been on a one
35:30
Speaker 2: directional trend. It's been headed up since the nineteen seventies,
35:34
Speaker 2: and researchers point to all sorts of things that might
35:38
Speaker 2: cause this. Had, you know, a multi decades slump after
35:42
Speaker 2: the dot com bubble and then also after the Great Recession,
35:45
Speaker 2: but generally speaking, dollar has been on the rise for
35:47
Speaker 2: quite some time. It was a stated goal of the
35:50
Speaker 2: Trump administration to see that reverse to some degree, because
35:53
Speaker 2: if you want to be an exporting powerhouse, it does
35:56
Speaker 2: not help to have a very expensive currency. I don't well,
36:01
Speaker 2: maybe I do need to explain that. I doubt I
36:03
Speaker 2: do need to. But if you are Ford Motor Company
36:06
Speaker 2: trying to sell your cars into the Argentinian market, and
36:10
Speaker 2: you are competing with a Chinese automaker who a can
36:15
Speaker 2: do it for cheaper, but B has the cheaper currency,
36:17
Speaker 2: then you're gonna have a tougher time with your sales
36:19
Speaker 2: over there than you would another country being the manufacturer
36:24
Speaker 2: of those goods. In any case, the dollar has been
36:27
Speaker 2: sliding pretty substantially this year, and we might think about that,
36:32
Speaker 2: you know, our own purchasing power here. We might think
36:35
Speaker 2: about a number of different considerations when it comes to
36:38
Speaker 2: our dollar sliding, But one that I hadn't really gone
36:40
Speaker 2: all the way through was the effect of other countries
36:44
Speaker 2: in say Europe, and all of their issues.
36:47
Speaker 3: So walk us through that side.
36:49
Speaker 2: Of the coin, Paul here, which would be if you
36:52
Speaker 2: are BMW or if you are Nestle and you are
36:57
Speaker 2: selling to the you know, the single largest market you
37:01
Speaker 2: probably sell to the United States, and you're seeing that
37:04
Speaker 2: currency fall apart, what does that do to your company
37:06
Speaker 2: in terms of its profitability?
37:08
Speaker 4: Yeah, Typically when we cover these currency stories, usually it's
37:11
Speaker 4: the reverse of it. It's you know, a Procter and
37:13
Speaker 4: Gamble talking about the impact of a stronger dollar weakening
37:17
Speaker 4: its bottom line because it's selling into other areas of
37:20
Speaker 4: the global economy, its second largest market being China. This
37:23
Speaker 4: is the reverse of that where you have European countries.
37:27
Speaker 4: If you look at the Stocks six hundred index, which
37:31
Speaker 4: is kind of the S and P five hundred proxy
37:33
Speaker 4: for the European markets, its members get about sixty percent
37:36
Speaker 4: of their sales overseas. So if you're selling into BMW
37:41
Speaker 4: is a good example, or the other one is SAP,
37:45
Speaker 4: a software company. If you're selling into the United States,
37:47
Speaker 4: and all of a sudden the dollar has weakened relative
37:50
Speaker 4: to where it was previously, that can have a dramatic
37:52
Speaker 4: impact on your bottom line. Now, all these big companies
37:55
Speaker 4: typically have currency hedges in place to negate the impact
37:58
Speaker 4: from that. However, the longer it goes on the dollar weakening,
38:03
Speaker 4: the further off they are from being able to hedge
38:05
Speaker 4: that risk. So it does present a tremendous.
38:08
Speaker 1: Risk to them.
38:08
Speaker 3: Let's take a quick break.
38:10
Speaker 2: When we come back, Alphabet starts to set the tone
38:14
Speaker 2: for the megacap earning season. We'll be covering Apple and
38:18
Speaker 2: Alphabet parent company next