Three Things (5/2)

Clouds Up, Costs Coming

Amid broader economic gloom, big tech is delivering bright spots. Microsoft and Meta both posted strong quarterly earnings, with Microsoft’s stock soaring 8.6% thanks to continued growth in its cloud and AI businesses. Meta followed closely behind with a 5.1% stock jump after beating revenue and profit expectations. While much of the market is grappling with tariffs, inflation, and demand uncertainty, tech’s earnings power is offering investors a reason to stay long.

But it’s worth noting: these are Q1 results, and the full impact of newly announced tariffs hasn’t hit yet. What really matters now is forward guidance—how tech leaders are preparing for potential disruption in supply chains, demand, and costs. So far, the sector is showing resilience where others are softening, thanks to strong balance sheets and demand for AI-related infrastructure. But with macro headwinds intensifying, even tech’s outperformance may come with a lagging cost. Investors are optimistic—but they’re also watching closely for signs that the immunity might not last.

Trade Hits the Brakes

The U.S. economy contracted by 0.3% in Q1 2025, marking the first decline in output since 2022. The downturn was largely driven by a surge in imports as companies rushed to stockpile goods ahead of President Trump’s sweeping tariffs. That front-loading distorted the trade balance and led to a record-setting trade deficit, dragging GDP into the red. General Motors was among the first to ring alarm bells, warning that tariffs could cost the company as much as $5 billion this year.

This isn’t just noise in the data—it’s the first concrete signal that protectionist policy is starting to choke growth. Supply chains are being rerouted, input costs are climbing, and margin pressure is mounting across industries. The tariffs were pitched as a growth engine for U.S. manufacturing, but the early evidence suggests the opposite: businesses are reacting defensively, not expansively. If this contraction deepens, expect earnings downgrades, tighter hiring plans, and renewed recession chatter.

 Consumer Caution Hits Retail

Retail is feeling the squeeze as cautious consumers pull back. McDonald’s U.S. sales fell 3.6% last quarter, with the company pointing to economic uncertainty and weaker foot traffic. Starbucks also missed earnings expectations, sending its stock lower as it struggles with tepid demand in both U.S. and international markets. Together, the two consumer giants are flashing warning signs about the health of discretionary spending.

This isn’t isolated weakness—it’s a symptom of rising economic fatigue hitting the everyday wallet. When trusted, value-driven brands like McDonald’s and Starbucks start missing, it signals that even middle-income consumers are recalibrating their habits. Higher prices, slower wage growth, and growing job insecurity are clearly beginning to weigh on day-to-day decisions. For retailers, it’s a signal to prepare for leaner quarters ahead, where loyalty won’t be enough without pricing flexibility and clear value.