Businesses deliver gloomy results even as markets celebrate Japan trade deal

Despite market celebrations over the US-Japan trade deal, recent corporate earnings reports reveal significant negative impacts from ongoing trade wars, with companies like Texas Instruments and steelmaker SSAB citing weakened demand, increased costs, and supply chain disruptions. Companies reported a combined loss of $6.6 billion to $7.8 billion between July 16-22 due to tariffs, with General Motors projecting a $4-5 billion hit by 2025. While the Japan deal eased some investor worries, the broader threat of tariffs on other major economies and sectors persists, indicating continued economic uncertainty for businesses.

Analysis

A clear disconnect has emerged between equity market sentiment, temporarily buoyed by the US-Japan trade agreement, and the tangible negative impacts of trade policy on corporate performance. While markets rallied on hopes for a similar European deal, earnings reports from key industrial and technology firms reveal significant damage. Texas Instruments (TXN) cited weaker-than-expected demand and tariff-related uncertainty, while chip equipment maker ASM International (ASMI.AS) warned of 'lumpy' order intake, sending its shares down 8.5%. The impact is broad, with steelmaker SSAB (SSABa.ST) noting that tariff turbulence is weakening the European steel market. The financial toll is material, evidenced by a reported $6.6 billion to $7.8 billion in combined corporate losses for the full year in just one week, and General Motors (GM) reaffirming a projected $4 billion to $5 billion hit by 2025. Furthermore, Nokia (NOKIA.HE) has lowered its 2025 guidance due to tariff headwinds. The Japan deal, while a positive step, does not resolve the systemic risk, as the threat of tariffs on the European Union and other economies remains, underscoring persistent uncertainty for global supply chains and corporate profitability.

Key Decisions for Investors

• Investors should treat policy-driven market rallies with caution, as the underlying corporate earnings and guidance from tariff-exposed companies like TXN and GM indicate fundamental weakness.
• It is critical to reassess exposure to sectors showing the most strain from tariffs, including automotive, semiconductors, and steel, and to scrutinize companies with complex global supply chains for margin pressure.
• Given the high uncertainty and negative corporate sentiment, consider reviewing portfolio hedges against downside risks stemming from potential escalations in trade disputes with Europe or other regions.
• Monitor upcoming earnings reports from bellwether firms and any news regarding the August 1 deadline for the European Union, as these will serve as key catalysts and indicators of the broader economic impact.