In early April, the Trump Administration unveiled its “Liberation Day” tariff plan, and it came as quite a shock, with the scope and severity of
Why Muted Guidance Signals Sunshine Ahead
Published Date : April 30, 2025
Given the market backdrop, we are diving into the curious dance of public companies offering muted guidance during economic uncertainty—and how this often sets the stage for earnings surprises once conditions stabilize. I am a fan of Peter Sellers, the late actor who played in favorite films such as Dr. Strangelove and The Pink Panther. Given we don’t anticipate a doomsday scenario, I am leaning into the character of the delightfully naïve sage, Chauncey Gardiner, made famous by him in the film Being There. One of the movie’s memorable quotes stated, “As long as the roots are not severed, all is well. And all will be well in the garden.” Let’s explore how this wisdom applies to the capital markets with some historical context.
Picture the economy as a garden, occasionally shrouded in fog, but with the sun eager to break through. When economic skies turn gray—think geopolitical tensions, or supply chain hiccups—public companies often play it safe. Like cautious gardeners expecting frost, they trim their earnings forecasts, projecting modest revenue growth or margin pressure. This “muted guidance” isn’t pessimism; it’s a pragmatic strategy. Executives, wary of overpromising during uncertainty, set conservative targets to help avoid future disappointments which can lead to further downside volatility.
Ideally, this conservatism often lays the groundwork for future upside performance. When companies drop their earnings forecasts, they create a low bar that’s easier to clear. As the fog of uncertainty lifts—say, when consumer demand rebounds or supply chains unclog—actual earnings often outshine projections. Like resilient perennials, U.S. capital markets tend to keep blooming despite the occasional chill.
We have seen this dynamic before. During the European debt crisis (2011-2012), S&P 500 companies frequently lowered guidance. By late 2011, “fourth quarter and first-quarter earnings growth estimates for the S&P 500 companies (had) been cut sharply… underscoring worries about the outlook for companies”.¹ Importantly, the financial headlines were not too dissimilar to this year which included “U.S. equity markets recorded quarterly losses as investor sentiment soured due to continuing anemic economic growth, U.S. debt ceiling debate, S&P’s U.S. sovereign downgrade, and the European sovereign Debt Crisis”.² As 2012 arrived, the headlines changed to “S&P 500 off to best start in 25 years”,³ which helped drive the index to a +16% total return that year.
A similar pattern emerged during the global growth slowdown of 2015-2016, driven by concerns over China’s economy. “During the month of January (2016), Q1 bottom-up EPS estimates dropped by 4.7%.”4 Although 2016 had its volatility, the S&P 500 ended the year with a total return of +11.5%.
Why does this happen? The U.S. financial system is a master at adapting. Companies pivot—cutting costs, streamlining operations, or finding new revenue streams—like gardeners pruning weak branches to encourage stronger blooms. Chauncey’s metaphor fits perfectly: “In the garden, growth has its seasons… there is spring and summer, but there is also fall and winter. And then spring and summer again.” Analysts, initially bearish, revise estimates upward as clarity emerges, and stock prices often follow.
Early 2025 has its unique qualities, but the capital markets have had a continued string of macro-related cliffhangers for decades and since 2012, the S&P 500 has climbed over 460%, shrugging off multiple “foggy” periods, awarding investors who navigated the headlines. Although there are no guarantees, post each plot twist and economic hiccup, the markets tend to stabilize, delivering returns that surprise the skeptics. So, when guidance looks gloomy, don’t despair. The fog will lift, the sun will burn through, and the garden will thrive. There will always be a set of market watchers calling for calamity, but we continue to expect that from this self-inflicted market disruption will evolve green shoots in the garden.
1 – www.reuters.com/article/us-usa-markets-stocks-idUSTRE7B904720111210
2 – www.sifma.org/wp-content/uploads/2017/05/us-research-quarterly-2011-q3.pdf
3 – www.financialpost.com/investing/sp-500-off-to-best-start-in-25-years
4 – www.insight.factset.com/2016/01/earningsinsight_1.29.16
Articles and Commentary
Information provided in written articles are for informational purposes only and should not be considered investment advice. There is a risk of loss from investments in securities, including the risk of loss of principal. The information contained herein reflects Sand Hill Global Advisors' (“SHGA”) views as of the date of publication. Such views are subject to change at any time without notice due to changes in market or economic conditions and may not necessarily come to pass. SHGA does not provide tax or legal advice. To the extent that any material herein concerns tax or legal matters, such information is not intended to be solely relied upon nor used for the purpose of making tax and/or legal decisions without first seeking independent advice from a tax and/or legal professional. SHGA has obtained the information provided herein from various third party sources believed to be reliable but such information is not guaranteed. Certain links in this site connect to other websites maintained by third parties over whom SHGA has no control. SHGA makes no representations as to the accuracy or any other aspect of information contained in other Web Sites. Any forward looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. SHGA is not responsible for the consequences of any decisions or actions taken as a result of information provided in this presentation and does not warrant or guarantee the accuracy or completeness of this information. No part of this material may be (i) copied, photocopied, or duplicated in any form, by any means, or (ii) redistributed without the prior written consent of SHGA.
Video Presentations
All video presentations discuss certain investment products and/or securities and are being provided for informational purposes only, and should not be considered, and is not, investment, financial planning, tax or legal advice; nor is it a recommendation to buy or sell any securities. Investing in securities involves varying degrees of risk, and there can be no assurance that any specific investment will be profitable or suitable for a particular client’s financial situation or risk tolerance. Past performance is not a guarantee of future returns. Individual performance results will vary. The opinions expressed in the video reflect Sand Hill Global Advisor’s (“SHGA”) or Brenda Vingiello’s (as applicable) views as of the date of the video. Such views are subject to change at any point without notice. Any comments, opinions, or recommendations made by any host or other guest not affiliated with SHGA in this video do not necessarily reflect the views of SHGA, and non-SHGA persons appearing in this video do not fall under the supervisory purview of SHGA. You should not treat any opinion expressed by SHGA or Ms. Vingiello as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of general opinion. Nothing presented herein is or is intended to constitute investment advice, and no investment decision should be made based solely on any information provided on this video. There is a risk of loss from an investment in securities, including the risk of loss of principal. Neither SHGA nor Ms. Vingiello guarantees any specific outcome or profit. Any forward-looking statements or forecasts contained in the video are based on assumptions and actual results may vary from any such statements or forecasts. SHGA or one of its employees may have a position in the securities discussed and may purchase or sell such securities from time to time. Some of the information in this video has been obtained from third party sources. While SHGA believes such third-party information is reliable, SHGA does not guarantee its accuracy, timeliness or completeness. SHGA encourages you to consult with a professional financial advisor prior to making any investment decision.
Other Posts By This Author
- – Can the Bull Market Continue to Run?
- – When Macro Overwhelms the Micro
- – Weight a Minute: Will GenAI Transform Your Figure?
- – Welcome Back to an Economic Cycle
Related Posts
Recent Posts
