Stocks Pare Drop as April Ends on Volatile Note: Markets Wrap

(Bloomberg) — Wall Street’s capacity to weather a deluge of bad news was thrown into sharp relief, as stocks pared losses even as evidence builds that the US economy is buckling under the weight of Donald Trump’s trade war.

Following a 2% slide on a report showing gross domestic product shrank, the S&P 500 was down by a mere 0.5% as separate data highlighted a jump in consumer spending, while a key inflation gauge decelerated. Hopes that trade talks will prove constructive also firmed up sentiment, after a report that the US has been proactively reaching out to China through various channels. 

At the same time, a cohort of investors is betting the Federal Reserve will administer its policy medicine to forestall a recession.

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“Weak data could hasten Fed cuts,” said Fawad Razaqzada at City Index and Forex.com. “The Fed is now more likely to step in sooner with its rate cuts to support an ailing economy, while the weakness in data could also encourage Trump to ease off on tariffs and make deals, quicker.”

The US economy contracted at the start of the year 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 Trump’s trade policy.

Meantime, the Fed’s preferred inflation gauge — the personal consumption expenditures price index — stagnated from a month earlier for the first time in nearly a year. Excluding food and energy, the so-called core PCE was also unchanged, the tamest in almost five years.

At the very least, says Bret Kenwell at eToro, this could tone down the worry that the Fed can’t lower rates should the labor market begin to weaken, even though officials will likely need to see further proof that inflation is cooling.

The economic picture drove sentiment just ahead of results from two giants: Microsoft Corp. and Meta Platforms Inc. A corporate proxy of global activity – Caterpillar Inc. – expects slightly lower sales this year if Trump tariffs remain in place and the economy dips into a recession. Ford Motor Co.’s chief said the tariff relief to automakers is “reasonable” while indicating more is needed to address the impact of his levies.

“If inflation is truly declining on its own merit, then that’s good news,” Kenwell said. “But given the recent declines in other economic readings, some investors might be worried that easing inflation is being caused by falling demand.”

To Krishna Guha at Evercore, Wednesday’s data give investors and the Fed a better read on the state of the economy heading into the tariff shock. But the relative magnitude of these effects may not become clear until some time in the third quarter, he said.

“This presents the Fed with a dilemma as to whether it should wait to July/September or consider cutting in June anyway because the risk of delay is too high, even though it may not have as much clarity on the outlook as it would like,” Guha noted.

Despite the contraction, the underlying details of the GDP report suggest some key drivers of the economy remained on a good footing at the start of the year.

However, looking further out, forecasters contend that the higher tariffs will cause a supply shock, challenging businesses and leading to a pullback in demand. Retaliatory levies would also discourage exports, setting up a tough backdrop for the rest of the year and making the odds of a recession essentially a coin flip.

“This was all first quarter,” said Neil Dutta at Renaissance Macro Research. “Now, uncertainty is an enemy of growth and it is also the enemy of Fed cuts.”

Trump renewed criticism of Fed Chair Jerome Powell as he championed his economic policies and tariff regime during a Tuesday event to mark his 100th day in office.

Corporate Highlights:

• Super Micro Computer Inc. gave preliminary results that fell well short of analysts’ estimates, a sign its comeback plan has been slow to gain traction.
• Starbucks Corp.’s chief executive officer said the coffee chain is making progress in reviving growth, but flagging sales in the latest quarter and a decaying macroeconomic backdrop amped up pressure on the company’s new management to deliver.
• Yum! Brands Inc.’s sales surpassed expectations, driven by the continued growth of its Taco Bell fast-food chain.
• Humana Inc. spent less money on medical care than Wall Street expected in the quarter, easing investor concerns about how rising medical costs are making business more difficult for US health insurers.
• Norwegian Cruise Line Holdings Ltd. broke with its cruise peers by warning that cruise demand, which has long defied worrying travel trends, is beginning to weaken.
• Visa Inc.’s fiscal second-quarter earnings beat analysts’ estimates as spending on its payment network remained resilient despite macroeconomic uncertainties.
• Snap Inc. narrowly beat analysts’ estimates for first-quarter revenue but declined to issue a sales forecast for the current period, saying it’s navigating macroeconomic “headwinds” for its advertising business.
• Booking Holdings Inc., the parent to travel brands including Kayak and Priceline, adjusted its revenue outlook due to what the company called increased economic uncertainty.
• First Solar Inc. cut earnings guidance following tariffs imposed by the Trump administration.

Some of the main moves in markets:

Stocks

• The S&P 500 fell 0.5% as of 2:17 p.m. New York time
• The Nasdaq 100 fell 0.5%
• The Dow Jones Industrial Average fell 0.1%
• The MSCI World Index fell 0.2%
• Bloomberg Magnificent 7 Total Return Index fell 1.7%
• The Russell 2000 Index fell 0.8%

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro fell 0.3% to $1.1357
• The British pound fell 0.4% to $1.3350
• The Japanese yen fell 0.4% to 142.86 per dollar

Cryptocurrencies

• Bitcoin fell 0.5% to $94,435.79
• Ether fell 1.1% to $1,789.65

Bonds

• The yield on 10-year Treasuries was little changed at 4.17%
• Germany’s 10-year yield declined five basis points to 2.44%
• Britain’s 10-year yield declined four basis points to 4.44%

Commodities

• West Texas Intermediate crude fell 3.5% to $58.33 a barrel
• Spot gold fell 0.3% to $3,307.36 an ounce

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