Three Things (5/13)

Earnings update

The largest companies in the U.S. are on track to post their best quarterly earnings relative to expectations in at least two years, as they’ve worked to keep costs down over fears of a recession. The 459 companies in the S&P 500 that have reported this quarter have posted profits on average 8.4% higher than expected. The average size of the S&P 500’s so-called double miss — a company reporting both revenue and earnings below expectations — was also lower than average this earnings season.

The anticipation of a recession that hasn’t come to fruition may be contributing to the notable outperformance. Companies continue to do more with less as they fear tougher times may be in the not too distant future. There’s little reason to believe that corporate America won’t continue to err on the side of caution because quite frankly, it’s worked – companies are hitting their marks and it’s easier to scale later than shrink in panic.

EV tariffs

The Biden administration is preparing to raise tariffs on clean-energy goods from China in the coming days, with the levy on Chinese electric vehicles set to roughly quadruple. Higher tariffs will also hit critical minerals, solar goods and batteries sourced from China. The move comes after Biden proposed new 25% tariffs on Chinese steel and aluminum last month.

The tariffs will likely have little immediate impact on Chinese firms, since its world-beating EV manufacturers have already steered clear of the US market due to tariffs. Most of the solar companies export to the US from third countries to avoid curbs so further regulation to close the loophole will likely be required to see an impact. What’s certain is that the administration is looking to increase competition at home, a trend that will likely need to include an even lower cost option to see the necessary demand increase required for mass adoption.

Apple and OpenAI

Apple is closing in on an agreement with OpenAI to use the startup’s technology on the iPhone, part of a broader push to bring artificial intelligence features to its devices. The two sides have been finalizing terms for a pact to use ChatGPT features in Apple’s iOS 18. An OpenAI partnership would let Apple offer a popular chatbot as part of a flurry of new AI features that it’s planning to announce next month.

Apple plans to make a splash in the artificial intelligence world in June, when it holds its long-awaited Worldwide Developers Conference, but a partnership with OpenAI is compelling. It’s interesting that the company is choosing to partner as opposed to building out features in house. Apple certainly has an advantage in a world with AI given their seamless hardware, software and services integration - we’ll be watching closely on what happens next for the hardware giant in need of a win.

Disclosures:

As of the date of publishing, AAPL is a holding in Titan's Flagship strategy.

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