Trade War: After all, It May Not be Profitable for American Giants
The US-China trade war probably got most press stories in recent times than any other development and rightly so. The economic clash between the two biggest global economies has the potential to impact the global economy. The same trade war is also cited as the biggest reason for the global slowdown and recent analysis suggest that it may also be the single biggest reason for driving down profits of many American multi-national companies.
With just a month away from reporting season, American companies that gain a majority of their sales from international markets are likely to see a sharp decline of nearly 9.3% in earnings pertaining to the second quarter of the running year. The FactSet, an S&P 500 observer, reported a 2.3% decline in the overall market earning. The IT sector is expected to take the biggest hit among 11 S&P sectors with over 11.5% drop in earnings due to this trade war.
On the other hand, however, American companies that sell and procure over half of their products/ services within the United States are expected to see a rise in their earnings. The estimate is 1.4%. It is because of the fact that such businesses are neither hugely affected by the increase in the cost of imports nor by higher duties in foreign territories. Domestic-focused companies also have a projection of gains in sales revenue of up to 6% in contrast to international-focused companies which may see a decline of up to 1.2% in their revenue.
Apart from tech, stables (2.8%), materials (7.2%) and discretionary (2.5%) are expected to be the biggest losers while energy, utilities, and healthcare are expected to gain 3%, 2.3%, and 2% respectively. In terms of revenue, the biggest gainers are communication services, healthcare and discretionary with 14.1%, 12%, and 3.8% respectively.
Apple, Boeing, and Intel are among the biggest sufferers of the whole trade war situation. Apple has nearly 60% of its business in international markets and, according to S&P Dow Jones and FactSet indices, it is likely to see 10.3% drop in quarterly earnings as compared to same-period earnings a year ago.
Boeing, which drives nearly 55% business outside the US, and is facing issues with 737 Max, is projected to see a sharp decline of 45.6% as compared to a same-period in the previous year. Similarly, Intel, with 80% overseas revenue, is projected to have a profit drop of 14.4% from the previous year. Moreover, the American retail sector is also at risk of losing big in the ongoing crisis.