Stock market closes down as investors weigh potential economic consequences of tariffs on company earnings
In the ongoing saga of trade tensions, two prominent American companies, Yum Brands and Caterpillar, have felt the brunt of increased tariffs. These tariffs have resulted in higher costs and lower earnings for both companies, leading to a significant impact on their stock performance.
Yum Brands, the parent company of KFC, Taco Bell, and Pizza Hut, missed its second-quarter earnings estimates, causing its shares to drop by 5.1%. The company attributed this shortfall to steep trade tariffs that reduced consumer spending. Caterpillar, a leading manufacturer of construction and mining equipment, warned that U.S. tariffs could cost it up to $1.5 billion in 2025. This warning contributed to a decline in its profit margins, a revenue decrease of 0.7%, and an increase in costs of 6.5%.
The consequences of these trade-related burdens were evident in the performance of major indices. On the day these companies reported, the Dow Jones Industrial Average, the S&P 500, and the Nasdaq Composite all ended lower, partly due to tariff concerns. Yum Brands' share price fell notably on tariff-linked earnings misses, and Caterpillar's warnings about tariff costs have increased investor uncertainty.
The impact of tariffs remains a work in progress, according to Terry Sandven, chief equity strategist at U.S. Bank Wealth Management. However, the broader market seems to be reflecting a cautious stance amid uncertain trade policies.
Other companies are also grappling with the effects of tariffs. For instance, Marriott International has cut its full-year forecast for revenue growth and profit, citing slowing travel demand and economic uncertainties. Some businesses in the U.S. services sector have also reported that tariffs are pushing costs higher.
Despite these challenges, the U.S. trade deficit narrowed in June, and about 80% of reports from S&P 500 companies are beating analyst profit expectations during the U.S. second-quarter earnings season. Notably, Disney's ESPN is acquiring NFL media assets and TV distribution for RedZone.
As the market awaits more key results, with both Walt Disney and McDonald's due to report, investors seem to be in a pause mode, according to Terry Sandven. He also stated that the backdrop for equities remains constructive for the year.
In the midst of these developments, volume on U.S. exchanges was 16.29 billion shares, compared with the average of roughly 18.33 billion over the last 20 trading days. On the Nasdaq, 2,216 stocks rose and 2,365 fell, with declining issues outnumbering advancers by a 1.07-to-1 ratio.
In summary, the ongoing trade tensions are causing significant challenges for businesses like Yum Brands and Caterpillar, leading to increased costs, supply chain disruptions, and weakened consumer demand. These factors are squeezing profit margins and weighing on their stock performance. The market, in turn, is reflecting this unease, with major indices showing signs of caution. However, the broader economic picture remains somewhat positive, with many companies still beating profit expectations and the U.S. trade deficit narrowing.
- The steep trade tariffs have led Yum Brands, a company whose assets include KFC, Taco Bell, and Pizza Hut, to miss its second-quarter earnings estimates, resulting in a decline in its share price.
- Caterpillar, a manufacturer of construction and mining equipment, has warned that U.S. tariffs could cost it up to $1.5 billion in 2025, causing a decrease in its revenue and an increase in its costs.
- The consequences of these trade-related burdens are reflected in the performance of major indices, as evidenced by their decrease on the days when Yum Brands and Caterpillar reported their earnings.
- Investors seem to be cautious amid uncertain trade policies, as demonstrated by the pause mode they appear to be in, waiting for key results from companies like Walt Disney and McDonald's.
- Asset acquisition in the finance sector, such as Disney's ESPN acquiring NFL media assets and TV distribution for RedZone, is still happening, despite the challenges posed by the ongoing trade tensions.
