Jim Cramer on if UPS and other earnings signal a broader slowdown ahead

Key Concepts:

• Earnings justification for market run-up
• Impact of tariffs on consumer sentiment and spending
• Potential Fed rate cut in response to economic slowdown
• Consumer spending slowdown
• Tariff-related business damage
• Company-specific earnings reports (UPS, Whirlpool, Stanley Black & Decker, PayPal, Boeing, Royal Caribbean, Norfolk Southern, Baker Hughes, Cadence Design Systems, Celestica, Merck, Waste Management, Figma)
• Takeover activity and antitrust concerns
• "Wait and see" attitude from the Fed

1. Market Overview and Earnings Shortfall

• The market's significant gains since the "post Liberation Day lows" require strong earnings to be justified.
• Earnings reports came up short, leading to market declines: Dow lost 205 points, S&P dipped 0.3%, and Nasdaq declined 0.38%.
• Negativity surrounding the consumer sector raised questions about whether the Fed should cut interest rates, as President Trump desires.
• Strength in industrials and tech was not enough to offset the negative sentiment.

2. Negative Earnings Reports and Consumer Weakness

• Three major household name companies reported "jarring quarters," indicating a disconnect between the stock market and real economic problems.
• United Parcel Service (UPS):
  • CEO Carol Tomé noted that while the overall economy remained resilient, the US small package segment was "unfavorably impacted by US consumer sentiment that was at historic lows."
  • Manufacturing activity in the US was described as "soft."
  • Average daily unit volume declined by 7%.
  • UPS's stock plunged more than 10%.
  • Tomé pointed out strong business between countries not including the United States, highlighting the damage to American commerce from tariffs.
• Whirlpool:
  • Was supposed to be helped by tariffs but was "walloped" instead.
  • Foreign competitors front-loaded inventory to avoid tariffs, crushing Whirlpool.
  • Earnings forecast was reduced from $10 per share to $6-$8.
  • The quarterly dividend was cut from $1.75 per share to $0.90.
  • Stock was down more than 13%.
• Stanley Black and Decker:
  • Experienced a weak consumer who backed away from do-it-yourself projects.
  • Faced an $800 million tariff hit due to imports from China and Mexico.
  • Stock was down 7%.
  • Cramer noted the irony that Stanley Black and Decker, a company President Trump aimed to punish for moving jobs overseas, is now suffering.

3. Tariffs and Economic Impact

• The earnings reports from UPS, Whirlpool, and Stanley Black & Decker suggest that the economy might be "substantially softer than we think," particularly regarding consumer spending and tariff-affected businesses.
• The negative effects of tariffs are becoming apparent.
• PayPal:
  • CFO Jamie Miller stated they "observed a slight softening in retail spending in the US, most apparent in areas likely impacted by tariffs."
  • Stock fell more than 8%.

4. Positive Earnings and Takeover Activity

• Boeing:
  • Reported a great quarter with strong cash flow, but the stock was still hit.
  • Cramer considered himself a buyer of Boeing.
• Takeover activity, including Norfolk Southern, Baker Hughes buying Chart Industries, and potential combinations involving Palo Alto Networks, GS, DoorDash, Aurora, Cramer, Fave, and Cyberark, did not create buying opportunities.
• Cadence Design Systems:
  • A partner of Nvidia, "blew away the numbers" with a tremendous quarter.
• Celestica:
  • Along with Sam, Mina, and Flex, is part of an elite group of contract manufacturers focused on tech.
  • Has a large number of orders.

5. Fed's Dilemma and Potential Rate Cut

• The tariffs are starting to "roil things," and consumers are not spending as much as expected.
• The Fed faces a dilemma: is the slowdown due to higher prices (bolstering a "wait and see" approach) or consumer insecurity (necessitating a rate cut)?
• Cramer believes it's a mixture of both, but that might not prompt the Fed to act.
• Without a rate cut, more quarters like those from UPS, Whirlpool, and Stanley Black & Decker could occur.

6. Viewer Question: Netflix

• A viewer asked about Netflix, noting that it seems to be "flattening."
• Cramer responded that Netflix is an "anecdotal stock" and that people may feel there's "nothing on" the platform.
• He suggested not to worry, as the company is run by "smart fellas."

7. Upcoming Segments

• Merck reported earnings that beat expectations, but the stock fell. Cramer will investigate with the CEO.
• Cramer will cover Figma, a new web-based design IPO launching on Thursday.
• Waste Management (now WM) beat earnings expectations, and Cramer will discuss the quarter with the CEO.

8. Conclusion

Today's earnings reports served as a "wake-up call," revealing the negative impact of tariffs and a slowdown in consumer spending. The Fed faces a difficult decision regarding interest rates, as the economy shows signs of weakness. The market's reaction to earnings suggests that the impact of tariff turmoil on the consumer had been underestimated.