In this environment, it’s nearly impossible to be sure of anything. I’m referring to the Market, but I suppose that statement reflects pretty much everything. The political hurricanes and ongoing trade war tensions have abated a bit. It was that which caused the crisis. Though there are signs of improvements ahead, they certainly haven’t disappeared. These are indeed emotional times. Setting those emotions aside, we continue to be in search of the facts. Earnings Season provides it.
This was the busiest week of Earnings Season. Roughly 40% of the S&P 500 companies, by market cap, reported. The headlines were dominated by 4 of the Tech Titans, with these companies accounting for 20% of the Stock Market alone. They are Microsoft, Meta, Amazon and Apple. Beyond Tech, many Consumer oriented companies reported results too, which provided more insight into the health and stability of America’s Economy. The takeaway was very much a mixed bag of good and not-so-good. Some areas showed signs of recession. Others indicate no such thing. Of course, all the while, there’s still that trade war which has exacerbated the volatility, in both directions. There are so many cross-currents beneath the surface. But the Market ripped higher this week, erasing all of the losses since Obliteration Day exactly a month ago. That said, it’s only the second back-to-back weekly gain in 2025. There’s so much going on. Here’s another rapid rundown:
All 4 of the Tech Titans that reported earnings this week delivered a double-beat.
Microsoft was first up. It was also the biggest winner. The company’s cloud business led. Azure’s growth accelerated, up 35%. That was well ahead of expectations. The strength is expected to continue. Microsoft’s AI spend increased too. The company is maintaining its aggressive investments in the innovative opportunity. This dispelled rumors of cutbacks in its data storage spend. The stock has been held back for over a year with concerns of slowing growth and increased competition. Companies keep spending on software and storage. The stock responded favorably, putting a charge back into the Tech trade. This was Microsoft’s best earnings report since 2015.
Meta, the company formerly known as Facebook, also beat on revenues and earnings. It reiterated its outlook too. The company is navigating the uncertain environment and made clear that advertising revenues are still holding in. Perhaps most important to the overall Market was Meta’s increased capital investment plans for Artificial Intelligence. Its MetaAI digital assistant now has over 1 Billion monthly users. The AI trade reignited this week.
The strength from the M&M’s (Microsoft and Meta) didn’t necessarily carry over to the A&A’s (Amazon & Apple).
Amazon reported a mixed quarter. The company’s web services business experienced slowing growth in the quarter, which was a disappointment considering the Azure strength. CEO Andy Jassy had a cautious tone around the uncertainty of tariffs near-term, but expressed confidence that the company would emerge stronger on the other side. “Given our really broad selection, low pricing and speedy delivery, we have emerged from these uncertain eras with more relative market segment share than we started and better set up for the future. I’m optimistic this could happen again.” Tariffs were the high-profile driver of the more cautious outlook. Importantly, Amazon said it is not seeing any slowing of demand or meaningful price increases. Some Amazon sellers have been reluctant to commit to Prime Day discounts amidst the tariffs, decreasing deals or pulling out altogether.
Apple also reported a double-beat, with earnings up 8% compared to last year. The company ‘s fiscal Q2 can be summed up like this: Solid iPhone growth, a Services miss and weak China. In fact, revenue increased in every region but China. Services has been both the fastest growing and most profitable segment for Apple. There are also concerns that iPhone sales decline in the June Qtr. Apple AI has yet to prove a meaningful driver for an upgrade cycle. CEO Tim Cook said the company plans for most devices shipped to the US in June to come from India and Vietnam to mitigate tariff impacts. He also said that, at current levels, tariffs will add nearly $1 Billion in costs.
What’s holding back A&A?
Both are much more exposed to global trade. Amazon is a large importer of foreign goods. Approximately 70% of goods on Amazon come from China. They’re directly exposed to the higher import costs. Apple primarily manufactures overseas. Even with the 90-day pause, the company is still feeling the heat of higher costs. Conversely, Microsoft and Meta are more exposed to American economic activity. The stocks reflected it this week.
Another important takeaway: The Tech Titans earnings show AI powering cloud, but tariffs are indeed hitting consumer demand for devices, goods and services. Another key, Nvidia CEO Jensen Huang warned Washington about China’s Huawei’s growing AI capabilities. It sounds like they listened. Smart policy and looser regulations are required for Silicon Valley to continue to lead in this Digital Age. American leadership and innovation have fueled the Market for centuries. It’s essential for its continued success.
Moving on from Tech, there were many other high profile American companies that reported earnings. Each provided a glimpse into the health of the Consumer and the Economy.
The Coca-Cola Company keeps charging. The company beat Street estimates for both revenues and profit. Equally important, it maintained its outlook for the rest of the year unlike so many other food and beverage companies. Coke Zero case volume grew 14% compared to last year. Fairlife, its Dairy product line, continues to be the number one brand for the company in 2025. The Coca-Cola Company is navigating the global cross-currents effectively. Much of it has to do with its business model. Coke is clearly a global business, but it has local operations. The beverages we drink here are made in America. What you drink in Asia is made in Asia, what you drink in Europe is made in Europe. Coke doesn’t import or export much.
Perhaps its biggest risk is a backlash in foreign consumption due to its brand. Coca-Cola is an American icon. Some countries have boycotted American products in response to the trade wars. But there’s been no boycott evident for the Real Thing. Coke has loyal demand and pricing power like few others.
All is not rosy for iconic American companies. McDonald’s just reported its worst quarter since Covid. Unlike Coca-Cola, the Golden Arches has faced some backlash overseas to the trade wars. It’s also facing challenges at home due to chronic high prices and the economic slowdown. Traffic from middle-income diners fell double-digits compared to a year ago. Evidence suggests that many Americans have started skipping breakfast or eating at home. They haven’t been going to McDonald’s as much this Spring.
The American Consumer has been showing clear signs of strain. McDonald’s is just latest to report what Starbucks, Domino’s and Chipotle already said. People have been tightening their wallets. But Americans are still spending. It just depends on where. Consumer Companies are clearly seeing mixed bags. Visa reported an 8% growth in payment volume during the March quarter. It was up 6% in the United States and grew 9% internationally. American Express said its customers continue to “eat out and enjoy life”. Live Nation said it hasn’t seen any signs of slowdown in that strong demand for concerts and events which came out of Covid. Coca-Cola also cited concerts and sporting events as strengths. The credit card companies did note a decline in travel to the United States, particularly from Canada. That’s a clear response to the trade wars.
One area still caught in the crossfire of the trade wars is in the auto sector. GM saw its profits slide nearly 7% compared to last year and the company pulled its guidance for the rest of the year. CEO Mary Barra said the outlook is too cloudy. GM said tariffs could result in a $5 Billion hit to the company. The company benefitted from a surge in car purchases in March, with sales up 13%. But that was the result of what’s become clear front-loaded purchases ahead of the tariffs. That behavior was evident throughout the industry. Mercedes and Volkswagen both asserted tariffs negatively impacting their sales. They both pulled their guidance for the rest of the year as well.
So, with all of that going on, it’s everyone’s question as to how the US Economy is holding up. The results are in. Q1 GDP contracted 0.3%. This is a quarter-to-quarter number. Growth was definitely expected to slow, but not shrink. It’s the first time that happened since 2022. Imports jumped in the quarter as companies stocked up ahead of tariffs.Consumer spending, which is the Economy’s main engine accounting for 70% of activity, rose at a 1.8% pace. That was the smallest increase in a couple years. Consumer spending was seemingly curbed with concerns for what lies ahead.
This was a stark reversal from the2.4% growth in Q4. Clearly the main driver of the Q1 contraction was the trade wars. Net exports, which measures the difference between imports and exports, subtracted nearly 5 percentage points. That was the biggest quarterly drag from net exports on record. Those records date back to 1947. Headlines can be misleading. The pull-forward in purchases overstates the negative impact. The US Economy grew at an annualized 2.0% in Q1. That’s quite solid. The real issue is it was expected to grow 2.3%.
What’s more, the Jobs Report was stronger than expected. 177K were created in April. 135K was expected. The Unemployment Rate stayed at 4.2%. This further alleviated growth concerns. So, I’d say the takeaway is, despite the tariffs and the sinking of Consumer confidence, the Economy is definitely not cratering.
Escalation to de-escalation? There are definite signs of thawing in US-China tensions. The White House continues to talk progress on negotiations with China, though it’s been short on details. Beijing just said it is evaluating the situation. That’s a positive development. Talks continue to progress with other nations, though no deal has been struck. The situation is definitely less bad than a couple weeks ago. However, those 145% and 125% tariffs still exist and have caused economic pain.
Back to the Market:
Global stocks rallied with the trade news as it offers a potential offramp for the White House to lower the current level of tariffs. Earnings put a charge in stocks too. It was a potent combo. The S&P is now up for 9 straight sessions. That’s its longest winning streak of the year. In fact, there hasn’t been a 9-day S&P win streak since 2004. What’s more, the last time both the S&P and Dow climbed 9 straight days was in 1992. Back then, Aladdin was in the movie theaters. The Cold War was proclaimed over. I was a sophomore at Cal. A lot has happened since.
This has been nothing short of an impressive bounce off those oversold lows in early April. That was the result of a 20% crash. Investor sentiment sunk. Panic set in. The Market was all Beared up. Things have normalized since, and the crisis price action has abated. Stocks rallied into the weekend, while Bonds gave up some gains. The chances of a Fed cut have diminished. The Yield Curve is steepening. That’s the Market saying things are less bad than previously thought. The rally is really more about relief. The Fed meets again next week. The Bond Market is still our guide.
A lot of potential good news has now been priced into the Market. There’s also a lot that can still go wrong. Oversold went to overbought quite quickly. That’s been the price action all year. As an investor, during sharp sell-offs, amidst the panic while the masses focus on what can go wrong, I start asking myself what could go right. The opposite is true within rallies too. These days it seems we constantly deal with extremes. There’s also this: Those large declines tend to be quick and destabilizing while gains come when you least expect them and tend to extend. Elevator down, escalator up; That’s the Market’s way.
This relief rally has been impressive. It sure has been soothing to see the green back on the screen. We expect the volatile price action to continue. Getting through the first speed bump of 5500 S&P and Dow 40K was important. The next resistance spot is the 5800 level on the S&P. It translates roughly to Dow 43K. It looks like a brick wall to us, which could keep stocks within the current range. That would likely lead to more back-and-filling before additional forward progress manifests. The bag is still mixed. Some of the damage done will take time to unwind. Trust can’t be earned with a soundbite or flip of a switch. Hold on tight. There was not one day in April that saw less than a 1% move. Don’t expect it to change in May. The volatility continues. Hold on tight.
Have a nice weekend. We’ll be back, dark and early on Monday.
Mike
