Investors to tune in for trade impact this profit season

Traders work on the floor of the NYSE in New York City Thomson Reuters By Caroline Valetkevitch

NEW YORK (Reuters) – With the United States and China finally formalizing tit-for-tat import tariffs, Wall Street is gearing up to dissect U.S. corporate earnings in the coming weeks for signs of a trade war impact and whether it will affect spending plans.

Investors worry the trade conflict with China, the United States’ largest trading partner, could make companies delay plans for capital expenditures, which jumped in the first quarter after the late December U.S. tax overhaul that included massive tax cuts for corporations.

The United States and China slapped duties on $34 billion worth of each others’ imports on Friday, escalating their conflict and suggesting there was little sign the dispute will soon end.

Machinery, aerospace and other industrial names have been among the hardest hit. S&P 500 industrials <.SPLRCI> have fallen more than 5 percent since March 1, when U.S. President Donald Trump said he would impose steep tariffs on steel and aluminum, while the S&P 500 <.SPX> has risen more than 1 percent in that period.

Following the tax package approval, expectations were high that companies would ramp up not just buybacks and dividends but capital spending in 2018, said Quincy Krosby, chief market strategist at Prudential Financial in Newark, New Jersey.

“What we’re hearing from a number of CFOs is if the trade issue continues to dominate the headlines and create even more uncertainty, those plans may be on hold,” she said.

In the first quarter, year-over-year S&P 500 capital expenditure growth was the highest since 2011, according to S&P Dow Jones data.

Strategists at DataTrek Research in New York said in a recent note the “primary planning headache” for corporate managers in the second half of the year

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