RBC’s Calvasina Says Too Early to Dismiss Tariff Hit to Earnings

RBC Capital Markets, led by Lori Calvasina, warns against prematurely dismissing the future impact of tariffs on corporate earnings and inflation, despite a robust start to the US reporting season. While companies have shown initial resilience, executives anticipate the full effects will become clearer in the second half of the year.

Analysis

RBC Capital Markets, led by Lori Calvasina, has issued a cautious outlook, suggesting that the strong start to the U.S. reporting season may be masking latent risks from trade tariffs. While initial corporate results indicate resilience, this is contrasted by warnings from a slate of executives who anticipate the adverse effects will become more pronounced and clearer in the second half of the year. This forward-looking guidance points to potential headwinds for both corporate earnings and inflation, challenging the prevailing market narrative. The analysis implies that current earnings strength should not be extrapolated without considering the delayed impact of trade policy, which remains a significant, yet-to-be-quantified, risk factor for the remainder of the fiscal year.

Key Decisions for Investors

• Investors should closely scrutinize forward guidance in upcoming earnings calls, focusing specifically on management commentary regarding the expected impact of tariffs on margins and costs in the second half of the year.
• It may be prudent to re-evaluate H2 earnings models to account for potential margin compression, particularly for companies with significant international supply chain exposure.
• Monitor key inflation indicators closely, as a tariff-driven increase could alter the macroeconomic landscape and influence future monetary policy decisions.