Daily

The S&P 500 and Dow reversed early losses, rising 0.1% and 0.3%, respectively, to extend their winning streak to seven days, while the Nasdaq closed 0.1% lower. Microsoft came in after-market. After hours trading was very strong – circa +6% at 4:04pm US time.

This reversal Equities were also pressured by the series of pessimistic earnings results, as corporate giants across all sectors abandoned their guidance due to economic uncertainty. Caterpillar, seen as an economic barometer, eased after lowering sales targets. Microsoft and Meta dropped 2% and 2.5%, respectively, ahead of their earnings.

It was a big day on the macro and sentiment survey front, with the release of Q1 GDP, consumer spending for March and the Fed’s preferred inflation measure, core PCE for both Q1 and the month of March.

The US economy contracted in Q1 for the first time since 2022 on a monumental pre-tariffs import surge and more moderate consumer spending, a first snapshot of the ripple effects from President Donald Trump’s trade policy. GDP decreased an annualized 0.3% Q1, well below average growth of about 3% in the prior two years. The data highlight the scramble by companies to secure merchandise ahead of expansive tariffs, with net exports subtracting nearly 5 percentage points from GDP, the most on record. A decline in federal spending also weighed on the figure. The GDP result, or at least the direction, was not unexpected – it has been well noted that businesses and consumers (auto sales, etc) were front running the tariffs. However, looking further out, forecasters contend that the higher duties will cause a supply shock, challenging businesses and leading to a pullback in demand. The Q2 GDP figure will look very different.

Meanwhile, consumer spending climbed 0.7% last month. That was the most since the start of 2023 and suggested households spent aggressively to get ahead of new tariffs.

Meanwhile Federal Reserve’s preferred, core PCE inflation, was released for Q1 and the month of March. The gauge showed core PCE inflation was up for Q1 but was flat for the month of March YoY. The former, at 3.5%, accelerated month than expected. However, the latter means we had no inflation YoY. However, April will be a different situation. We note reports of some very large price increases now being reported towards the latter part of April.

Tomorrow on Thursday, we get the ISM manufacturing report and while that is considered soft data, it could be very important to the markets because if the report shows the same kind of nationwide response that has been reported in some of the regional numbers, it will show a large drop in manufacturing activity, new orders, etc. And that is not going to play well with Wall Street.

The monthly jobs report is due Friday and is projected to show some cooling is underway. A report out Wednesday showed employment at private companies rose a disappointing 62,000 in April, the smallest gain since July.

So, what does this mean for the Fed’s decision next week? Well, we will defer to Mike McKie Chief Bloomberg Economist – it just reinforces the idea that they will not do anything yet. Remember, this data is either quarter ended and/or month ended March. And in March the only tariffs that applied were on Aluminium and Steel.