There is no shortage of catch phrases being used on business news channels these days. One you’re likely to hear is “pulling guidance.” I talked with a client about what that means. Let’s take a look as you are very likely to hear this phrase in the coming weeks.

The stock market is made up of ownership of thousands of businesses. When these businesses elected to “go public ” (meaning they listed their shares for sale on a US public exchange), they committed to certain requirements set by the US Securities and Exchange Commission. One of those requirements is the quarterly release of their financial results.

Typically, the release of these results is accompanied by a phone call led by management, where the company can provide an update to investors, sharing their results for the most recent period but perhaps more importantly, offering their outlook for the months and year ahead. This future forecast is known as guidance and usually includes key financial metrics such as revenue, earnings, and earnings per share.

Guidance is very important to investors – and the market. If you read this column a few weeks back, you may recall the discussion on price-to-earnings multiples. In essence, a share price represents the expected earnings of a company times the multiple investors are willing to pay per share of earnings. The earnings (ie: the “E”) is obviously a key component of this formula. As earnings estimates come down, investors would have to increase their multiple just for a stock price to hold constant (which usually does not happen as sentiment and eagerness to “buy” a stock tend to fall as earnings fall and the outlook turns negative). Given the reliance on earnings estimates, companies are very careful about these figures and seek to provide the clearest (and most accurate) outlook they can at that the time. Material deviation from these estimates (especially to the underside) is rarely taken well by markets.

In normal course, this is a challenging task as there are so many variables at work. But with today’s economic backdrop, it’s likely to be almost impossible for companies to formulate a reliable estimate. It’s very unclear what the tariff policies are and what they will be in the coming days, weeks, and months. Further, there is a more-than-zero probability that all of this volatility and sharp market pull back could lead to a sharp change in consumer behavior leading to an economic slowdown or recession in this consumer-driven economy. Guidance is always a gamble for these companies but today, it’s almost certainly a losing hand.

What will they do? My guess is that most companies will “pull guidance.” This has happened before when the economic backdrop is muddled (see COVID era). Simply put, this means the companies will decline to provide guidance, citing the uncertainty. This leaves investors with access to the current results but with no help anticipating what may come next. Investors have to decipher the likely path forward for a company, without any “map” or directions to start with.

We will see soon enough if this is how earnings season plays out. Certainly an interesting time to be an investor and a management team!