The latest on earnings, economic indicators and facing turbulent times.
It was a week of both mixed economic and earnings news and higher prices in the equity market, reflecting the uncertainty of this moment as investors, CEOs, consumers and world leaders try to set their strategy for 2025 and make sound decisions.
On the one hand, we had a stronger-than-expected print on the growth of U.S. payrolls in April, clocking in at 177,000, which topped the forecast of 130,000. The report reflects solid hiring in health care, transportation and warehousing, and financial services, while federal employment fell. With that, the unemployment rate remains historically low at 4.2%, as expected. Easing inflationary pressures muted wage growth to a 3.8% year-over-year pace.
This report was a contrast to the Department of Labor release yesterday, which shows weekly jobless claims hit their highest level in two months in the final full week of April. Similarly, an ADP report on private payroll growth shows there were only 62,000 private sector jobs created in April, the fewest since July 2024.
The strength of the labor market is one of the key ballasts for the economy in this period of uncertainty, as it is allowing consumers to maintain stable spending even as sentiment is souring. On that point, the Conference Board’s Consumer Confidence Index fell more than expected, dropping 7.9 points from 93.9 to 86.0 in April, the fifth consecutive month of decline and the lowest reading in nearly five years.
In the same vein, the first estimate of GDP for Q1 2025 revealed a decline of 0.3%, which was a sharp drop from the 2.3% annualized pace set at the end of last year. The reduction was largely due to record-breaking imports, which clocked in at nearly $343 billion during the quarter. This caused the goods trade deficit to balloon to $162 billion over the same period. The uptick in imports and larger trade imbalance are reflections of businesses trying to get their goods into the U.S. before tariffs could be applied. As a result, net exports lowered GDP by almost 5%, the most in history. It’s not unexpected given the context of the Trump administration’s tariff policies, but it certainly made folks feel uneasy to see a negative print on GDP.
On a positive note, the Federal Reserve’s preferred inflation gauge, the core personal consumption expenditure (PCE) index, remained flat for the first time since 2020. On an annual basis, core PCE rose 2.6% while the total index rose 2.3%. While still above the Fed’s target, this is an improvement, and the news gave investors relief, as it is evidence that the inflation bogeyman remains contained for now.
However, I must hand it to the tech and communication services giants who rode to the rescue of a market grappling with the risk of recession and the impacts of tariffs this week.
Better-than-expected earnings from Microsoft and Meta Platforms boosted markets, reassuring investors that the Magnificent Seven tech giants are relatively resilient to tariff uncertainty. Facebook parent Meta reported strong sales and said growth would remain steady, assuaging concerns tariffs would harm its digital-ads business—a chunk of which comes from Chinese companies. Microsoft, meanwhile, indicated that big corporate clients aren’t slashing technology budgets just yet. The closely watched Microsoft Azure cloud platform rebounded to 33% growth in its latest quarter from 31% the previous period, cheering investors who’d worried about a slowdown. Microsoft’s More Personal Computing segment outpaced Wall Street’s revenue growth expectations, and so did its Intelligent Cloud segment.
In contrast, Amazon and Apple’s stock prices both dropped early today after delivering disappointing results as key profit drivers fell short. The 16.9% year-over-year growth in the Amazon Web Services cloud business missed Wall Street’s estimates and was down sequentially from 19% last quarter. Apple’s results exceeded Wall Street’s expectations on earnings per share, revenue and iPhone sales. But the quarter fell just short on the services side, which grew 12%, more slowly than expected. That’s the division that drove strong profit growth in past quarters and has an outsized impact on investor sentiment, especially at a time when Apple faces so many iPhone challenges in China. Speaking of which, Apple said U.S. tariffs could cost it $900 million this quarter.
While it is helpful to see markets turn their focus to earnings and economic data and reacting less to the uncertainty from Washington, we recommend taking care to manage the swings, both down and up, with a healthy dose of caution and a focus on your plan. There are risks and potential catalysts that could lead to dramatic repricing in either direction as we peer into the second half of the year. In this type of environment, you are better to rely on the wisdom of investors like Warren Buffett, who once said: “To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights, or inside information. What’s needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework. You must supply the emotional discipline.” Now is most certainly the time for that discipline for all of us.
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