Delta Air Lines Inc. and the parent of Frontier Airlines recently yanked earnings guidance for 2025, with JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon saying that he expects “to see more of that.” United Airlines Holdings Inc. took the unusual step of offering two profit scenarios since the environment “is impossible to predict this year with any degree of confidence.” It isn’t just the airlines. JD Sports Fashion Plc warned analysts to not even ask about tariffs — “we’re not going to answer” — and Levi Strauss & Co. said its team was still trying to figure out the impact of the levies.
The first-quarter earnings season is only just beginning in earnest, but investors are already preparing for the possibility that they may end up getting a lot less forward-looking information than they’re used to from top executives.
On today’s Wall Street, corporate guidance is usually front and center in quarterly earnings reports and management calls. In many cases, it’s become the main event of the quarterly tradition, more important than the actual financial results, which are seen as yesterday’s news. For some four decades, the proliferation of corporate guidance has mostly been a one-way street. But lately, President Donald Trump’s unpredictable economic agenda is making it close to impossible for many companies to issue a reliable outlook.
The past two weeks have been especially jarring. Since Trump’s “Liberation Day” tariff announcement, corporate America has been absorbing a policy that could yet drive tariffs to the highest in a century, potentially upend global supply chains, freeze planned capital expenditures and — depending on what ultimately happens with consumer prices — maybe set off a retail retrenchment.
Even if the administration had laid out a reliable roadmap for the policy shift, the upheaval would still be difficult to forecast, since it’s never been tried before in a modern developed economy as important as the US. But to make matters worse, the rules of the game keep changing by the day. Many countries and a few key industries have already earned temporary reprieves, but the medium-term uncertainty continues to run extremely high.
It also comes as the administration has been targeting universities and law firms with whom it disagrees, causing a chilling effect over the broader knowledge ecosystem that drives any semblance of efficient market pricing. “This is the first time I’ve ever had to do a call where I had to think about the things that I was saying, not just in terms of how they reflect our views on markets and economics,” JPMorgan strategist Michael Cembalest recently said in a presentation. On the whole, this added uncertainty should weigh on the S&P 500 Index as long as it persists — a risk premium that’s hard to quantify but everyone basically knows is there.
All in all, guidance is a net positive. In the days before corporate outlooks, investors used to read the tea leaves of recent revenue trendlines and rely on “channel checks” of other firms in a respective supply chain to back out sales projections (many still do to some extent). Nowadays, they also have outside data to track trends in foot traffic and credit-card spending at companies’ stores. (Disclosure: Bloomberg Second Measure provides such a product.) Still, analysts and investors never have quite the same forward visibility as chief executives and chief financial officers.
Indeed, the evidence suggests that corporate guidance really is useful. This piece from Verdad’s Naoki Ito tracked guidance over the past two decades in Japan — where its issuance is almost universal among public companies — and found that it “serves its purpose.” As Ito put it, “it provides a good directional guide to the actual [operating income] growth that will be realized over the course of a fiscal year.” (Whatever investors gained from the guidance, it wasn’t of much use in predicting forward stock returns, but that’s another story.)
Granted, guidance is hardly perfect. Companies face incentives to underplay good news to create an earnings day “pop” in their stock, which generates positive news coverage, and history shows they’re not particularly forthcoming about bad news. As a practice, it also encourages management to focus on the short-run at the expense of the long-run.
From the perspective of Wall Street analysts, it can cause them to herd together, with everyone’s forecast closely resembling the one put out by management. That, in turn, can lead investors to assume an unreasonably narrow range of outcomes — essentially making the stock seem less risky than it really is. Ideally, analysts and investors should consider corporate guidance to be just one input into their models about the future. For all those reasons, it will be especially fascinating to see if this shyness with projections outlasts Trump’s brand of economic policy volatility.
For now, love it or hate it, modern equity markets remain hooked on guidance. It’s a security blanket that management will struggle to take away without causing some market upsets along the way. So as earnings season gets underway, management teams will face hard decisions about whether to give investors projections that they can’t totally stand behind. In a way, it’s a no-win situation.
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