Companies stop giving forecasts

Dozens of Fortune 500 companies have withdrawn their annual earnings forecasts, saying they cannot put numbers on the next few months. The announcements followed a 9.5 per cent jump in shares on 9 April. Trade policy keeps lurching, border duties keep changing, and the administration has now declared a sudden 90-day tariff truce.

The truce is narrower than the rally implied. The higher country-specific rates announced on April 2nd are suspended for most partners, but a 10 per cent baseline tariff remains on almost everything, and duties on Chinese goods have been raised again, to 145 per cent in total. Tariffs on steel, aluminium and cars stay in place. The S&P 500's gain on April 9th, its biggest in a single day since 2008, was followed by a sharp fall the next day as investors read the fine print.

Why guidance matters

American companies are not obliged to publish earnings forecasts, and many large ones stopped giving quarterly guidance years ago. Warren Buffett and Jamie Dimon argued in 2018 that the practice encouraged short-term thinking. Annual guidance survived because it is useful: it anchors analysts' estimates, disciplines management, and lets investors compare what a company promised with what it delivered. Withdrawing it is a public admission that management's own view of the year is too uncertain to share.

Delta Air Lines was among the first to pull its full-year outlook, citing weaker bookings as consumers and companies cut discretionary travel. Its move matters beyond airlines. Travel is one of the first things households and businesses cut when confidence falls, so airlines often give an early read on demand. Other firms, from consumer brands to industrial suppliers, have used earnings calls this month to warn that tariff costs cannot yet be quantified.

Planning without prices

A company's financial plan depends on predictable costs for raw materials and freight and on knowing what foreign sales will bring in. When import tariffs can swing from zero to 25 per cent and back inside one quarter, setting targets for earnings per share becomes guesswork. Finance chiefs would rather give no guidance than publish figures that the next executive order could make obsolete.

The planning problem runs through the whole business. Procurement teams do not know whether to order ahead of tariffs or wait for exemptions. Pricing teams cannot set list prices for the next season without knowing their landed costs. Capital budgets stall, because a factory built to serve one tariff regime may be in the wrong country under the next. A 90-day pause does not solve this: it simply moves the deadline to July, which falls in the middle of most companies' planning cycles for next year.

Uncertain companies also hoard cash. Boards that cannot see next year's earnings tend to slow share buybacks, delay acquisitions and draw on credit lines as a precaution, as many did in 2020. Buybacks have been one of the steadiest sources of demand for American shares in recent years, so a pause in them removes a buyer just when the market needs one. Hiring freezes follow the same logic and feed back into consumer spending.

Analysts in the dark

Without company guidance, equity analysts and fund managers struggle to value shares at all. A discounted cash-flow model needs a stable discount rate and a terminal value that can be predicted with some confidence.

The effect on valuations works through both parts of the model. Uncertain cash flows mean wider ranges for every forecast, and investors pay less for a wide range than for a narrow one with the same midpoint. The discount rate rises too, because the equity risk premium demanded for holding shares goes up when outcomes are hard to predict. A company whose expected profits have not changed at all can still be worth noticeably less when those profits become harder to forecast.

Lessons from 2020

The last time guidance vanished on this scale was in the spring of 2020, when hundreds of companies withdrew forecasts as the pandemic shut down economies. Share prices then recovered quickly, helped by enormous monetary and fiscal support, and most companies reinstated guidance within a few quarters. The difference now is that the source of uncertainty is policy, which can change again at any moment, and the Federal Reserve, worried about tariff-driven inflation, has signalled no rush to cut rates.

The financial-crisis precedent is less comforting. In 2008 and 2009 withdrawn guidance was followed by deep cuts to earnings forecasts and a long bear market. Which path this episode follows depends on whether the tariffs turn out to be a negotiating tactic, quickly bargained away, or a lasting feature of the American economy.

Who pays for the fog

Uncertainty is not distributed evenly. Companies with domestic supply chains and pricing power, such as some utilities, software firms and health-care providers, can still give credible forecasts and should command a premium. Importers, retailers, carmakers and airlines bear the most uncertainty and trade at the widest discounts. Smaller firms suffer disproportionately, because they lack the scale to renegotiate with suppliers or hedge their costs, and because banks lend more cautiously when borrowers' earnings are unpredictable. The market for new share issues has frozen too; several prominent companies postponed planned listings after April 2nd.

The strongest counterargument is that withdrawn guidance can be a sign of prudence rather than distress, and that the pause shows the administration responds to market pain. If deals with major partners follow within the 90 days, companies could reinstate forecasts by the summer and the rally would look justified. Watch the tone of first-quarter earnings calls that are getting under way, the number of companies reinstating or cutting guidance, credit spreads on lower-rated corporate bonds, and progress in talks with Japan, South Korea, the European Union and, above all, China.

If management teams cannot forecast their own cost of goods sold, investors should demand a discount for the uncertainty, and the rally after the tariff pause looks like a technical bounce that could easily fade within weeks. Expect more companies to cut or suspend guidance as first-quarter results arrive, and expect analysts' earnings estimates for the full year to fall steadily until the 90-day deadline brings clarity in July.