Trade jitters running high at U.S. companies ahead of U.S.-China talks

Vastavam web: Worries about the U.S.-China trade war are running high during the current U.S. quarterly reporting season, with companies as diverse as Juniper Networks and O’Reilly Automotive bemoaning the consequences but saying they are finding ways to weather the storm. Trade negotiations shift to Shanghai on Tuesday, with stock market investors sensitive to fallout from the year-long conflict and any signs that it could escalate.

Tariffs were mentioned in about a third of conference calls held by S&P 500 companies reporting their quarterly results through July 26, according to FactSet. The 71 firms flagging tariffs were up from the 50 companies discussing tariffs in the same time frame in the first-quarter season, but less than the 99 a year ago when tariffs were an emerging issue for U.S. corporations.

Parts supplier O’Reilly Automotive said in its conference call last week that it raised the prices of its products to make up for higher costs related to the tariffs. Network gear maker Juniper Networks Inc on Thursday missed the mid-point of its margin guidance due to the tariffs, saying it expected pressure to continue, even as it manages its operating expenses to mitigate the damage.

Of S&P 500 components that have reported their second-quarter earnings, export-focused companies have beaten analysts’ expectations 77% of the time, while companies focused on the domestic economy have exceeded expectations just 66% of the time, according to an analysis by Credit Suisse.

Investors were surprised last week after Texas Instruments said that U.S.-China trade tensions were not hampering its ability to conduct business in China, while Intel said on Thursday that customers worried about potential tariffs on chips were preemptively buying processors.

“We really think the Q2 action was pulling from the second half into the first half,” Intel CFO George Davis told Reuters following the earnings report. “Depending on how the trade discussions go, there could be some additional activity there, but we’re not expecting at the same level, if at all, during the third quarter. We’re forecasting demand based on the signals we’re getting from our customers.”

China recently signalled it would allow Chinese firms to make some tariff-free purchases of U.S. farm goods, while Washington has encouraged companies to apply for waivers to a national security ban on sales to Huawei. But going into the talks, neither side has implemented the measures that were intended to show their goodwill.