UnitedHealth, UPS, and Whirlpool Show First Cracks in a Strong Earnings Season

Traders work on the floor of the New York Stock Exchange. (Michael M. Santiago/Getty Images)

The current profit-reporting season felt its first major wobble on Tuesday as weaker-than-expected results from a trio of stocks highlighted the underlying softness of the domestic economy and the market’s resulting reliance on megacap tech.

United Parcel Service , the world’s biggest package-delivery group, said that given uncertainty about the economic outlook, it is no longer providing guidance on revenue or operating profit. It said in April that it wouldn’t update the outlook for the full year it issued in January. Its June-quarter results missed Wall Street forecasts.

Tariffs were cited as part of the “dynamic and evolving trade environment” the group is trying to negotiate into the back half of the year.

Appliance maker Whirlpool , meanwhile, slashed its annual profit guidance, lowered its quarterly dividend, and posted weaker-than- expected second-quarter earnings in a late Monday update. A soft housing market and efforts by Asia-based rivals to build up stockpiles of appliances ahead of tariffs taking effect dragged on the results and remain a risk for the year.

UnitedHealth , meanwhile, issued another round of disappointing profit guidance, citing changes to the Affordable Care Act and surging medical costs. The group’s full-year adjusted earnings are set to fall for the first time since 2008.

And although Boeing issued better results than expected, it continued to report negative free cash flows. The aerospace company lost $1.24 a share.

U.S. economic prospects, meanwhile, appear to be weakening. Goldman Sachs noted in a report last week that tariffs are likely to blunt growth in gross domestic product for at least the next three years by slowing trade and investment.

“Our tracking estimate suggests that GDP growth in [the first half of this year] will be a bit over 1%, and we expect it to be a bit under 1% in [the second half of this year},” the bank said.

Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics, agrees, noting that even if Bureau of Economic Analysis issues a better than expected estimate of second-quarter gross domestic product on Wednesday, that will likely be the result of disruptions linked to tariffs and trade.

A rush to import goods and avoid tariffs in the first quarter ultimately led to GDP shrinking by 0.5%. The sale of those goods, and an overall slowdown in imports, is expected to have boosted growth over the three months ending in June.

“The economy’s underlying momentum likely remained
weak following the hit from the tariff shock and the ongoing
drag from high interest rates, with consumption rising only
modestly and investment falling,” he said.

Market reaction to Tuesday’s earnings news certainly suggests investors remain focused on this week’s slate of earnings reports from big tech companies. Even with sharp declines for UnitedHealth and UPS, as well as a 17% tumble for Whirlpool, the S&P 500 was in position to close at a record high in early trading.

That is a reminder of the enormous influence the megacap tech stocks have on the broader market, and how in some respects they aren’t as reliable a signal for potential economic weakness as they once were.

The downbeat news from the three companies comes just ahead of what is likely to be a crucial two-day stretch for the stock market as four of its biggest names post June quarter updates and near-term outlooks.

Those four companies— Apple , Microsoft, Meta Platforms and Amazon.com —represent nearly a fifth of the S&P 500’s $58.3 trillion in market value. The S&P 500, in fact, is now more concentrated than at any time in its history, with the top 10 stocks comprising around 39% of the benchmark’s total market value.

The S&P500’s Information Technology sector, which includes Apple, Microsoft, and Nvidia, will generate around a fifth of all the benchmark’s $538 billion in profits, according to LSEG data. Adding in the Communications Services sector, which includes Meta Platforms and Alphabet, takes that tally to around 34%. Topping it off with the financial sector lifts it to 54%.

Capital Economics also notes that while six of the 11 S&P 500 sectors have posted gains since the market’s previous peak in mid-February, “the rally has been less broad-based when it comes to size.” In other words, it has been the biggest companies that have lifted the index.

Thomas Matthews, head of markets for the Asia Pacific region at Capital Economics, argues that the narrowness of the rally means the market likely will “depend especially heavily on ‘big tech’ profit results continuing to paint a positive picture,” especially around artificial intelligence.

“With the worst of the risks around trade seemingly fading, we suspect there are fewer remaining obstacles to further investor enthusiasm for AI…even if that meant the rally narrowed further,” he said.

Write to Martin Baccardax at martin.baccardax@barrons.com