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Where Price Pressures Are Bubbling By Jon Sindreu

I'm Jon Sindreu, Heard on the Street columnist, filling in for Spencer. Markets are following on from yesterday's moves, with U.S. stock futures, Treasury prices and the dollar all heading lower. Long-maturity Japanese bonds keep selling off, which is further testing the nerves of those investors who are concerned about government debt.

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Whether tariffs will stoke inflation may be the most important question in financial markets right now. To answer it, listen to the ones setting the prices.

On Tuesday, Home Depot maintained its full 2025 outlook while claiming it won't pass on higher import costs to consumers . Yet other retailers, including Walmart , have said they will.

Depending on what Target, Lowe's and TJX announce in today's earnings reports, investors could get a clearer picture of what will happen once firms work through inventory stockpiles accumulated in the first quarter.

In a recent report, FactSet highlighted that over 400 companies in the S&P 500 mentioned tariffs in first-quarter earnings calls.

This says little about corporate behavior (what else are executives supposed to talk about?) But it is notable that more firms than ever in the past decade are discussing price haggling with suppliers.

Within the broader S&P Composite 1500 index, 40 companies have mentioned "supplier negotiation" or "cost sharing" since April. This is a small group, but it's well above average-even compared with the postpandemic shortage era.

Apparel makers Under Armour and Skechers, retailer Sally Beauty, and electronics specialist Hubbell, for example, recently told Wall Street they expect vendors to absorb part of the increase in input costs.

This is indeed the approach to mitigating tariff impacts that is rising the most in popularity, Morgan Stanley researchers found after analyzing earnings-call transcripts using large-language models.

Still, many companies say their top strategy is spreading out supply chains. Home Depot underscored Tuesday that supplier diversification, enhanced productivity and dropping some products will let it keep prices low without hurting profit margins.

Morgan Stanley's sentiment analysis, however, suggests many executives are growing less confident that any mitigation strategy will work, especially in the real estate, materials, and energy sectors.

This could point to a repeat of the postpandemic "excuseflation," when price rises snowballed because firms used others' pricing decisions to justify their own. Marsh Advisory's James Crask, who advises multinationals on geopolitical risk, provides an early example: Even in April, some automotive clients were seeing suppliers talk about jacking up prices despite having no direct tariff exposure

Equity investors will like that recession mentions in earnings calls are less frequent than in 2022. And, just like in 2023, U.S. consumers might prove resilient to higher prices : In the first half of that year, S&P 500 earnings dipped only slightly.

The problem: The index's forward price/earnings ratio has swelled to 21.6, even assuming 8.7% profit growth over the next 12 months. If earnings flatlined instead, valuations would jump to 23.5 times.

The market isn't priced to tolerate big tariff costs, no matter who ends up paying them.

Stocks I'm Watching

Retailers including Target , Lowe's and TJX are due to report earnings before the opening bell.

Wolfspeed : The semiconductor component maker is preparing to file for bankruptcy within a matter of weeks, The Wall Street Journal reported. Shares tumbled more than 50% in premarket trading.

Kraft Heinz : The food giant said it is evaluating strategic transactions as it seeks to boost shareholder value, but didn't give specifics. The company said two directors representing Berkshire Hathaway would step down from its board. Kraft Heinz shares ticked up premarket.

Carter's : The children's clothing company slashed its dividend, citing the need to invest in its business as it faces a challenging market and tariffs.

Toll Brothers : The homebuilder backed its annual outlook , despite softer demand and a fall in profit last quarter.

Super Micro Computer : The server maker is planning to expand its server production capacity in the U.S., as global demand for AI accelerates, its chief executive said.

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American stocks are looking quite unexceptional

The S&P 500 is lagging behind an MSCI index tracking global stocks by more than 10 percentage points this year. If that gap holds through year-end, it would be the widest annual margin since 1993.

What I'm Reading Ford is pulling back on its EV ambitions, and is letting rival Nissan share its flagship U.S. battery plant. ( WSJ ) UnitedHealth built an incredibly successful vertical-integrated behemoth. Now it's faltering. ( WSJ ) Your summer vacation could cost less this year. Here's why. ( Barron's ) The Bank of Japan has been urged to boost bond buying in the wake of a spike in super-long yields. ( Reuters ) Billionaire Jim Ratcliffe juggles twin challenges at Manchester United and Ineos. ( FT ) This Day in Markets History

On this day in 1720, the London Daily Post advertised a prospectus offering stock in a GBP6 million equity raise "to carry on a design of more general advantage...and of more certain profit...than any undertaking yet set on foot." It was the earliest known "blind pool" and, accordingly, there is no record of whether its investors ever got a taste of that "general advantage" or that "certain profit."

Beyond the Newsroom

Buy Side from WSJ: Our list of the best women's loafers includes classic penny loafers and on-trend lug soles.

About Me

My name is Jon Sindreu and I've been writing about economics and markets at The Wall Street Journal for 11 years, including nearly seven years at the Heard on the Street column.

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This article is a text version of a Wall Street Journal newsletter published earlier today.

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May 21, 2025 06:46 ET (10:46 GMT)

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