A week where facts outperformed feelings
Let’s start with the bad news (though it wasn’t even so bad): first-quarter U.S. gross domestic product (GDP) came in at -0.3%, the first negative data since early 2022. But peel back the layers and the report looked far less gloomy than the top line suggested. Personal consumption remained strong, contributing 1.2% to growth, and demand in the economy clearly hasn’t collapsed. The drag came almost entirely from net trade. The reason? A massive surge in imports (roughly half of which were gold-related), as businesses rushed to bring in purchases ahead of expected tariff hikes. If you stripped out that distortion, this figure would arguably be much closer to flat or modestly positive. The market did react strongly initially but regained all that was lost during the day.
Continuing the macro data theme, the soft-versus-hard divergence continued. Regional surveys and sentiment indicators from the U.S Federal Reserve (the Fed) have continued to deteriorate, but when it comes to actual activity, the slowdown is less dramatic. S&P Global’s Manufacturing Purchasing Managers’ Index (PMI) ticked down to 50.2, while the Institute for Supply Management’s (ISM) version slipped down to 48.7. If you’ve heard us talk about the economy before, you’ll know we love using PMI data. This month’s 48.7 reading may sound weak, but based on past trends, it still points to 1.8% annualized GDP growth, according to ISM. In this strange cycle, the gap between sentiment and actual behaviour remains wide. As we’ve said before, this remains a market where what people say and what people do don’t always match.
Big tech stole the show this week. Despite all the macro noise, the AI-driven capex (capital expenditure) story is starting to prove itself in the numbers. Microsoft, Meta and Alphabet all posted strong earnings, not just due to AI hype, but thanks to real sales growth and better expense management. These results came just in time for a sector that’s been under pressure year-to-date, with the Magnificent Seven performing anywhere from flat to -20%. If this strength continues, we may see a rotation back into large-cap tech names and out of recent “safe haven” trades, especially if the macro backdrop stabilizes.
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