Capital markets perspective: Two-fer
Capital markets perspective: Two-fer
Capital markets perspective: Two-fer

Two-for-one deals are mostly awesome. I mean, come on — when’s the last time you passed up “buy a chalupa, get one free”? Probably never. But when you think about it, there actually are a few Buy One, Get One (BOGO) deals that aren’t so great. Taco Bell two-Fer? Awesome! Buy one Long Island Iced Tea, get the next one for a penny? Yep, I’m in. But BOGO colonoscopies? Nah, hard pass.
Last week, we learned about two new types of two-fers that are also a hard pass in the financial realm: Two-for-one company earnings guidance and BOGO central bank outlooks.
The first of these came from United Airlines when it announced first quarter earnings on Tuesday. Results were fine — true to form, the company easily beat analyst estimates for the just-completed quarter. But what instead drew investors’ attention was the company’s forward-looking guidance: The macroeconomic environment is so unsettled right now that executives felt it appropriate to offer two sets of outlooks — one for a relatively benign environment and another in which trade turmoil tips the economy into recession that causes travel demand to grind to a halt.
Reading the press coverage following the announcement made it feel like United’s bimodal guide was the first of its kind. Wise though it may have been, nobody I talked to or read comments from had ever seen such a thing. Further, the airline’s management team seems to have gone one step further by beginning to prepare around the edges for the more dire of its own two forecasts by trimming flight schedules and retiring a few older aircraft while they still had a few miles left in ‘em.
It’s hard not to read that as an endorsement of comments made by industry peer Delta, whose executive team described consumers as acting as if we’re already in a recession when it announced its quarterly results a week before United’s. It’s also hard not to read between the lines and see it as evidence that the higher-income consumer — who has clearly done their part to keep the economy flying — might be starting to pull back a little bit.
Maybe we could look past United’s dueling forecasts as simply the case of a C-suite exercising caution and prudence when speaking to its investors. But the following day, no less a financial authority than the Bank of Canada — our northern neighbor’s own version of the U.S. Federal Reserve (The Fed) — followed United’s lead by issuing a dual forecast of its own: One where tariffs levied against Canadian producers remain modest and cause growth to slow but remain positive, and another where the trade trouble intensifies and causes the Canadian economy to dip into recession by 2026.
That, too, isn’t exactly normal. But again, it’s tempting to write this off as bankers just being bankers. After all, scenario analysis is as much a part of a central banker’s day-to-day as shredding extra lettuce and heating up an extra gallon or two of refried beans is to a Taco Bell manager whose store is running a two-fer on chalupas. But when the CEO of the world’s largest airline and the monetary policy committee of the world’s ninth-largest central bank both throw up their hands and decline to pin down a single forecast within 24 hours of each other, it’s hard not to take notice.
Of course, dueling forecasts like these are simply the outward manifestation of the immense amount of uncertainty roiling the global economy right now. That same uncertainty has kept equity markets (and U.S. Treasury yields) under pressure all month, making this one of the most volatile Aprils in recent memory for both stocks and bonds. It’s also continuing to show up in so-called “soft data,” like last week’s Empire State Manufacturing Survey where pessimism reached levels “that had only occurred a handful of times in the history of the survey.”1 Also notable inside Empire was a relatively new datapoint suggesting that manufacturers covered by the survey are increasingly wringing their hands over input availability — an obvious nod to the still-evolving tariff framework that could eventually disrupt supply chains just as badly as the COVID pandemic did.
Back in the corporate world, riffing about uncertainty is becoming absolutely de rigueur: Semiconductor capital equipment maker ASM Lithography caught the world off guard last week when it announced a big decline in ‘bookings’ (vernacular for forward sales) amid all the trade troubles, while everyone’s favorite AI play Nvidia told markets that new restrictions related to sales of its not-quite-cutting-edge H20 chip into China would leave a big hole in future revenues. Back on earth, trucker J.B. Hunt bemoaned the fact that it has fewer trucks on the road than it has recently (and those that are on the road are carrying less freight), while the bulgiest of the bulge-bracket banks, Goldman Sachs, put prose behind the idea in succinct fashion when its leadership team told markets that it’s become a “markedly different environment” for the bank here in 2Q.
Uncertainty is, in and of itself, enough to give markets heartburn. Sure, one-off exemptions like the carve-out for smartphones and laptops feel like a step toward normal, but even that nod toward inflation and corporate profitability was roiled by background worries that still-pending semiconductor tariffs might make the exemptions moot all over again. Besides, as we’ve tried to stress here and elsewhere, it’s not knowing that keeps investors on edge. Tell us the rules and we can adjust; but keep changing them, and people eventually start throwing their hands up and walking away...
Which brings us to our last stop on the holiday week’s Tour of the Unknown: The Fed. One hoped-for antidote to economic uncertainty has always been the so-called “Fed put,” wherein market volatility becomes so intense and threatens consumer and business confidence to such a degree that the Fed reacts by cutting rates. But in a speech in Chicago on Wednesday, Chairman Powell reiterated his standing message that the Fed can still afford to hold its fire on rates for a little while longer, essentially dashing those hopes even as he acknowledged that the Fed’s twin targets — inflation and the unemployment rate — are likely to move in the wrong direction for a while.
If that sounds like ‘stagflation’, that’s because it is — in small doses, anyway. That should probably be enough to deepen the uncertainty all by itself, but it also brought the idea of Fed Independence back into the spotlight. That’s the doctrine that holds those responsible for charting the monetary course of the economy outside the direct influence of policymakers in Washington (who, all else equal, would probably prefer growth-oriented loose monetary policy to slowdown-inducing tightness, even if it stokes inflation). Predictably, Powell’s comments were met with scorn by the President, who said “Powell’s termination can’t come soon enough.”
That shouldn’t necessarily surprise anyone, since the idea of replacing Powell was a consistent — though perhaps not necessarily a marquee — feature of President Trump’s reelection campaign. It also doesn’t have to be a crisis — while the willingness to set aside decades of Fed independence is troubling, the desire to replace Powell unilaterally at the stroke of a pen is far harder said than done: The most likely way to remove him from the chairman’s chair would be to convince him to resign rather than simply firing him like he was a failed contestant on The Apprentice.
It’s also probably a positive that some highly-placed members of the administration also recognize the importance of keeping monetary policy out of the hands of politicians. None other than Treasury Secretary Scott Bessent tried to reassure markets by describing Fed independence last week as “a jewel box that has got to be preserved.” Bessent then noted that plans to replace Powell would probably ramp up in the fall. That’s significant, because it squares fairly well with the timeline associated with an orderly transition of Fed Power: Powell’s term as Chair expires in May 2026.
Still, its fair to wonder how Secretary Bessent’s comments — meant to reassure markets — were received at the top. It’s probably safe to assume “not well.” And if that’s really the case, and if the doctrine of Fed independence proves to be institutionally weaker than some assume (an issue the Supreme Court may take up soon),2 it’s also not too hard to imagine another two-fer that eventually grabs the market by the neck: The simultaneous replacement of both the Fed Chair and the Secretary of the Treasury. (I say that only half tongue-in-cheek, so either way stay tuned — Season Two, Episode Two of Washington Drama is waiting for all of us in our Netflix queues.)
What to watch this week
Tariff talk will of course remain top-of-mind for markets this week. As before, the pace of deal-making between the U.S. and any of our trade partners targeted for tariffs could set the tone, as would any hint that big economies (or economic blocs, like the EU) might be preparing retaliation. Continue to watch also for announcements related to semiconductor levies/restrictions or pharmaceutical tariffs, both of which have previously been promised by the administration.
Until tariff talk subsides, even important stuff like corporate earnings will take a back seat. This week’s highlights include at least two of ‘The Magnificents’ (Tesla on Tuesday and Alphabet/Google on Thursday), as well as a whole bunch of consumer staples stocks (3M, Philip Morris, and Colgate-Palmolive to name a few). Defense and aerospace stocks — newly relevant given geopolitical goings-on and the global nature of their businesses — are also on deck this week, with Lockheed Martin, Northrup-Grumman, General Dynamics, GE Aerospace, and Boeing all set to release results. For chips and tech, see Intel (Thursday), as well as IBM and Texas Instruments (both Wednesday) for insight into how dramatic shifts in the economic and trade environments are influencing current and expected earnings.
For consumer views, two companies who make a living extending credit to Mr. & Mrs. America are scheduled to release results: Capital One Financial on Tuesday and Discover Financial on Wednesday. For the most part, big bank earnings were a pleasant surprise insofar as there wasn’t any massive, widespread move to write off bad debts or set aside capital for an expected rise in delinquencies. A similar read from these (and other) consumer-focused lenders would be an encouraging sign. The same would be true of Southwest Airlines: If it manages to sound decidedly more upbeat than its peers when it releases earnings on Thursday, it could go a fair distance toward watering down worries stoked by United’s dual forecast and Delta’s “recession is neigh!”.
Finally, we’ll get our first two oil majors of the season this week when Italy’s integrated energy company Eni (Wednesday) and American Standard Philips 66 (Friday) report results. Further downstream, look to Haliburton (Tuesday) and Schlumberger (Friday) for more clues on how the carbon complex is holding up. That matters, because changes in energy demand can provide significant clues about the health of the economy when the direction of the macro is as up-for-grabs as it is right now.
It’s a fairly light week from a scheduled macroeconomic release perspective, with Monday’s Index of Leading Economic Indicators or Tuesday’s Flash Purchasing Managers’ Indices (PMIs) probably capturing honors as the releases to watch most closely. Keep an eye on the manufacturing version of the PMIs for hints that a pre-tariff surge in orders has run its course as well as any suggestion of supply chain stress. On the services side, scan that release for signs that demand — particularly export demand — has started to wane. Ditto for a pair of remaining regional Fed manufacturing reports (Richmond on Tuesday and Kansas City on Thursday), as well as the sometimes-interesting/sometimes-not anecdotal survey of Fed districts known appropriately as “the Beige Book.”
Watch also for hints that inflation is accelerating — something that will be on fuller display Wednesday when the Atlanta Fed releases its widely under-appreciated business inflation expectations release. And speaking of inflation, Friday’s final read on April consumer sentiment from the University of Michigan will be read closely for hints that consumers have become any less freaked-out about the prospective path of prices.
Finally, a few housing-related releases might be worth a look. Last week’s homebuilder sentiment index from the National Association of Homebuilders wasn’t as bad as it could’ve been given the recent uptick in mortgage rates,3 and with the Spring selling season now well underway, existing home sales from the National Association of Realtors will help form a view of the other, perhaps more significant, side of consumer real estate demand.
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1 https://www.newyorkfed.org/survey/empire/empiresurvey_overview
2 Ellena Erskin, https://www.scotusblog.com/2025/04/will-the-court-overturn-a-1930s-precedent-to-expand-presidential-power-again/
3 https://www.nahb.org/news-and-economics/housing-economics/indices/housing-market-index
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