Dear investors, welcome to the Trump Trade Wars, where 'winning bigly' is really about 'losing globally':
As the chart above, via FactSet, indicates, companies in the S&P500 with global trading exposures are carrying the hefty cost of the Trump wars. In 2Q 2019, expected earnings for those S&P500 firms with more than 50% revenues exposure to global (ex-US markets) are expected to fall a massive 13.6 percent. Revenue declines for these companies are forecast at 2.4%.
This is hardly surprising. U.S. companies trading abroad are facing the following headwinds:
- Trump tariffs on inputs into production are resulting in slower deflation in imports costs by the U.S. producers than for other economies (as indicated by this evidence: https://trueeconomics.blogspot.com/2019/07/22719-what-import-price-indices-do-not.html).
- At the same time, countries' retaliatory measures against the U.S. exporters are hurting U.S. exports (U.S. exports are down 2.7 percent in June).
- U.S. dollar is up against major currencies, further reducing exporters' room for price adjustments.
Three sectors are driving S&P500 earnings and revenues divergence for globally-trading companies:
- Information Technology,
- Materials, and