Margins will be 'biggest pressure point' for earnings this year
The Federal Reserve decided to hold rates steady and forecasts two rate cuts this year.
Charles Schwab senior investment strategist Kevin Gordon joins Market Domination to discuss what the next earnings cycle might look like and why margins will be a telling "pressure point" when it comes to gauging the labor market and corporate responses to tariffs and inflation.
To watch more expert insights and analysis on the latest market action, check out more Market Domination here.
I do want to talk more about labor, but first, I want to ask you a little bit more about earnings because we've talked to certainly a lot of strategists who are very optimistic about where earnings are going to go from here, and they say, even if there is a tariff impact, not going to be huge, you still have the big secular tailwind of AI, etcetera. Um, what are you going to be watching most closely in these earnings reports thematically to see where there are maybe pressure points or lack thereof?
I mean, the biggest pressure point is really what's happening with margins. You know, a couple years ago when we were going through the big inflation surge, a lot of the focus was on what do unit sales look like, how much of it is just price versus actual volume growing. This time, it's much more focused on on margin because you are in a more precarious part or or state with the labor market. Um, typically what companies do when you're faced with, you know, rising costs or lower revenue is you you look to get rid of your biggest cost which is labor. So any signs from a thematic standpoint that there is a bias towards cutting labor to save on that versus anything else, um, I think that's going to be an important thing to watch. And unfortunately, you know, even to date with with everything tariff related, there's not one consistent theme across the market. There's not even one consistent theme as to how companies are responding within sectors, even within consumer discretionary or consumer staples. You're seeing massive dispersion and how companies have responded to this, and how they were already positioned heading into this too.
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