(Bloomberg) — The looming impacts of tariffs will be in focus for a second-straight earnings season, prompting investors to position for more volatility.
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Trade tensions have ratcheted up again as US President Donald Trump threatens higher levies on a slew of trading partners — including 50% on Brazil and 30% on the European Union — and claims no extensions will be granted for the latest Aug. 1 deadline. Given the past months’ drama over tariffs, the renewed uncertainty may continue to hinder some companies’ ability to offer forward guidance.
Options are implying higher earnings day moves for S&P 500 companies than in most recent quarters, albeit not quite as elevated as in April when tariff turmoil enveloped the market.
While first-quarter earnings season saw more mentions of tariffs, many companies did not quantify the effects or adjust guidance. Investors will now be looking for greater clarity — however, according to Goldman Sachs strategists, 73% of S&P 500 companies are due to report before the new deadline for countries to make deals with the US, so the picture could stay muddied.
“Options markets are pricing for a relatively volatile set of stock reactions to second quarter earnings announcements, particularly among consumer and health care names,” said Kieran Diamond, equity derivatives strategist at UBS. “This is consistent with the trend observed over recent years, with earnings day moves having grown larger and larger, in both the US and Europe.”
The health care sector stands out as having the greatest potential for outsized swings, with the implied move notably higher compared to prior earnings seasons. The group is grappling with a threat of very high tariffs, on top of cuts to Medicaid in the tax and spending bill just passed by Congress.
Analysts have lowered the estimates hurdle sharply in Europe heading into the season, while US expectations are also muted. Derivatives strategists at BNP Paribas wrote in a note last week that positioning in Europe is light with the German fiscal announcement creating upside risks to bullish growth projections.
In the US, Deutsche Bank strategists note that positioning is slightly below neutral, which is supportive of another rally. They highlight a long standing pattern of equities rallying through earnings season “about three-fourths of the time, with a median gain of 2%.”
