“Animal Spirits” Return to Trump Tariffs in Bullish Wall Street Earnings Season, says Goldman Sachs
Goldman Sachs analysts have identified three key trends during this quarter’s earnings season, noting that “animal spirits” are outweighing concerns related to tariffs.
Despite tariff worries, Wall Street is experiencing a strong earnings season, according to Goldman Sachs’ recent update. The market, which closed for Presidents’ Day, is showing healthy revenue growth and an overall strong US consumer, indicating that economic activity is progressing at a solid pace.
Solid Revenue Growth Despite Tariff Concerns
With 77% of the S&P 500 companies reporting their earnings, Goldman Sachs observed a 3.2% year-over-year increase in real revenues, excluding the volatile energy sector. This solid performance reinforces that businesses are benefiting from consumer spending resilience, with sentiment around the consumer hitting its highest point in three years.
- Company commentary during earnings calls suggests a consistent trend of solid consumer activity.
- GS’s quantitative measure of consumer sentiment during earnings calls has shown notable improvement.
Tariffs Impacting Capital Expenditures (Capex)
Despite the positive earnings trend, tariffs are putting a strain on capital expenditures (capex) and raising inflation expectations. Goldman Sachs pointed out a noticeable increase in management references to tariffs compared to prior trade wars.
- For companies with broad tariff exposure, capex expectations were revised up by only 2%, while companies facing foreign retaliation saw a 1% reduction in capex revisions.
- Firms like General Motors and WW Grainger indicated tariffs could delay their capex plans.
Additionally, companies exposed to tariffs, such as Cardinal Health and Corning, are raising inflation expectations more than their peers.
Deregulation and AI Trends
Goldman Sachs also highlighted deregulation and artificial intelligence (AI) as notable trends in earnings calls.
- Deregulation has not been as impactful in the short term as some had anticipated under the Trump administration. Companies do not expect significant near-term activity boosts from deregulation, especially in sectors like energy and banking.
- While AI continues to be a major focus, Goldman Sachs notes that there is limited near-term macro risk from AI technology. Despite discussions surrounding DeepSeek and AI’s potential, the analysts predict no immediate implications on the economy due to AI-related shifts.
Goldman Sachs’ findings indicate strong earnings growth driven by resilient consumer activity, despite some challenges posed by tariffs and regulatory changes. While AI is an emerging topic, it is not expected to significantly impact the market in the immediate future.
Source: pune.news
