Hope you are all doing well. The major U.S. indexes posted weekly gains of around 3% as stocks extended the previous week’s positive trend. For the S&P 500, Friday’s gain marked the ninth positive day in a row. That is the index’s longest such streak since November 2004. The S&P 500 had a modest 0.7% decline in April. The Trump administration generated plenty of volatility amid elevated trade tensions. As of April 8, the index had tumbled 12.6% from its closing level at the end of March. The next three weeks, it recovered nearly all that amount to finish only slightly negative overall. If you have money in the stock market that you are planning on spending before the end of this year, now would not be a bad time to take the money needed for spending out and move it to something safer. However, longer term I believe the market will resume its bull run so if you don’t need to spend the money this year then leave your current stock allocations alone. Today is the Star Wars holiday, May the Fourth, so I have broken down this week’s update using quotes from Yoda.
“The greatest teacher, failure is” – Yoda
The U.S. economy failed to grow in the first quarter of this year. U.S. GDP contracted at a 0.3% annual rate in this year’s first quarter. It marked the first negative reading since the first quarter of 2022. The preliminary GDP report was weakened by a surge in imported goods. That should not be a concern as it is a consequence of U.S. businesses recently rushing to stock up on imports ahead of higher tariffs. The negative number puts some pressure on the administration to speed up the time frame for getting trade deals across the finish line. The GDP number despite being negative had some positives. It showed resilient consumer consumption despite negative consumer sentiment. Personal consumption rose by 1.8% in the first quarter, down from 4% in Q4 but still above forecasts of 1.2%. It also showed significant corporate investment. Business investment climbed by 21.9%, as corporations spent on equipment ahead of potentially higher prices from tariffs.
“Always in motion is the future” – Yoda
Corporate earnings thus far have been great. However, the market is not concerned about the past quarter. It is squarely focused on corporate guidance for next quarter and beyond. Investors are hoping to discern the impact of tariffs. Despite the great first quarter results, guidance for the second quarter of earnings growth has weakened. There is uncertainty around the consumer, trade and tariffs more generally. The earnings growth forecast for Q2 has fallen to 5.8%, down substantially from the 11.3% expected at the end of last year.
“Do or do not. There is no try.” – Yoda
The tech giants are not waiting to capitalize on the AI boom they are doing everything they can to increase their dominance. Microsoft and Meta pointed to continued capital expenditure (capex) spending in artificial intelligence (AI) and datacenter growth. These two companies alone committed upward of $152 billion in capital expenditures to support AI capacity. The market thought they may hesitate and slow capex spending amidst the volatility around tariffs, that was not the case and markets reacted favorably.
Please use my calendar link below and schedule a phone or zoom appointment. The calendar link allows you to schedule a call as early as the next day. If you are concerned or need to speak to me please use the link and schedule rather than trying to reach me over the phone without an appointment. May the Fourth be with you!
