Buckle Up

Given my focus on years or even decades, I don’t tend to get too caught up in earnings season. Very little happens over a three-month span that really changes a long-term thesis. So, I spend earnings season mostly listening for vibes and making sure nothing has happened to take a company off of its long-term path.

By my standards, this has been an eventual earnings season. Not in terms of companies unexpectedly getting thrown off course, but in terms of vibes. And I’m sorry to report the vibes are not great.

I spend a lot of time looking at the transports. It’s an area of knowledge for me, but also, I think a pretty good harbinger of what is to come. For all the talk of AI most of the economy still requires moving things from point A to point B. The volume and velocity of that movement can provide hints about what is going on.

2024 was a lousy year for the transports. For a lot of reasons. Some of it is the natural ebb and flow of a cyclical industry. The pandemic and post-pandemic “stuff” boom was bound to fade, reducing volumes. On top of that, recall that the talk this time last year was whether we could achieve a “soft” landing or instead fall into a recession. In times like that, the playbook calls for reducing inventories, not adding to them. Reduced inventories mean less need for transportation.

I expected to see improvements coming out of the sector this earnings season. The recession fears are a lot quieter now than they were 12 months ago. The conventional wisdom has shifted away from any talk of a hard landing. Corporate confidence signals have surged higher. Add to it the implications of tariff talk. I’m not here to discuss good/bad or real/not real with tariffs. I’d only say that the legitimate near-term threat of tariffs should be enough for companies to at least consider stocking up inventories ahead of potential tariffs. Which would mean activity in the fourth quarter.

Alas my gut was very wrong. All across the transport landscape this earnings season, we’ve seen more of the same. Just a few examples: UPS made headlines mostly for its (long overdue) divorce from Amazon, but the company reported flat 2024 revenue (down 10% from 2022) and predicted no growth in 2025. This isn’t just a matter of having to backfill Amazon since a lot of that transition won’t happen until 2026. This is a statement on volume expectations.

Elsewhere, Union Pacific told a compelling story about cost cuts but also guided for anemic growth in 2025. And brokerage companies C.H. Robinson and RXO both reported strong quarterly results but traded down on 2025 guidance. (I think brokerage is particularly interesting to watch because it is asset-light, meaning we can strip out a lot of the cost noise and get a real feel for demand trends.)

Simply put, if there is a rebound on the horizon none of these companies are seeing evidence of it yet. And these are the companies who should see it first.

You’ve seen this outside of transports as well. The theme for this quarter, if there is a theme, is better-than-expected results but worse-than-expected guidance. From big tech to retail there has been a real effort by management teams to temper expectations about the quarters to come.

This is not an attempt to predict a near-term stock crash or a recession. These CEOs can’t predict the future any better than you or I can. And I respect cautiousness in a CEO. The most likely explanation is rather benign: Management teams are seeing the same chaos and volatility everyone else is seeing and are setting a low bar. I can’t imagine anyone out there in corporate land is running around like Chicken Little. They are being cautious and trying not to overpromise.

But even a lack of clarity is notable.

As investors, we need to take that sentiment to heart. A downturn is coming. It could be today; it could be two years from now. But at some point, it is coming.

The best thing we can do to prepare is acknowledge the inevitability.

Disclaimer: Fits and Starts DOES NOT provide financial advice. All content is for informational purposes only. Stocks mentioned are as reference only, and a mention should not be interpreted as a buy or sell recommendation. The author is not a registered advisor or a broker/dealer. DO YOUR OWN HOMEWORK. The information contained within is not and should not be construed as investment advice, and does not purport to be. The red zone has always been for loading and unloading of passengers. There’s never stopping in a white zone.

No statement or expression of opinion, or any other matter herein, directly or indirectly, is an offer or the solicitation of an offer to buy or sell the securities or financial instruments mentioned.