Our latest episode covers the potential for a recession, the International Monetary Fund’s recent World Economic Outlook, and the anticipated timing of future interest rate cuts. Watch as Gary Quinzel, Vice President for Portfolio Consulting, focuses in on economic growth, fiscal and monetary policy, interest rates, and inflation to explain what’s going on in the markets this week.
If you have any questions about how the current economy and market environment could affect your financial plan, reach out to a Wealth Enhancement advisor today.
TRANSCRIPT:
Hello. My name is Gary Quinzel, Vice President of Portfolio Consulting at Wealth Enhancement. Thanks for joining this edition of the 7 Market Movers. Today, we're going to be talking a little bit about economic growth as well as fiscal and monetary policy, and we'll throw in some talking points on rates and inflation as well. So, picking up where my colleague, Aya Yoshioka left off. I know last week she talked about some of the earnings results of the Mag seven stocks.
Continuing on that theme, you know, we now have roughly 72% of the S&P 500 companies having reported earnings. And overall, it's been a pretty strong earning season, which means, you know, corporations have continued to hold up well, despite a lot of mentions of the potential impact of what the tariffs mean. But we have seen, you know, overall, on average, almost 13%, growth from an earnings perspective, which, you know, if we end up that way for the quarter, that would mark the second straight quarter of double digit earnings growth, which is certainly somewhat, impressive.
And, also, if you look at both the number of firms, outperforming as well as the magnitude of the outperformance relative to expectations, both of those figures are above their ten year average. And so, sum it up to say that we continue to see strong earnings, which, you know, despite the fact that we did have a negative GDP, print, for Q1, which was largely due to a surge in imports, you know, corporations seem to be faring alright amidst the, uncertainty. You know, the one thing that we can point out, however, is that there has been an uptick in, negative earnings revisions. And if one were to chart that, you know, the earnings guidance, it definitely has an inverse relationship with policy, uncertainty. So, basically, as, you know, uncertainty rises, you could expect earnings per share expectations to fall. And so the good news, of course, is that even with those negative revisions, the market can, you know, climb that wall of uncertainty, and it has proven time and time again to be, you know, quite resilient. You know, there's a lot of talk about whether or not this current situation will result in an economic recession.
It's probably too soon to say for sure, but another way to think about it is we may not be set up for an economic recession, but rather an economic suppression, which is a little distinct from the former in the sense that when the economy is suppressed, it's due to a distinct factor such as today with the tariffs. If one were to remove those factors tomorrow, it's almost like things go back to the way they were. Now, obviously, a lot of uncertainty has been created due to the change in expectations, but suppression can change rather quickly. And that's kind of what we're seeing right now today, and a lot of news has come out.
You know, most recently, there was talk about the US and the and the UK coming to a trade agreement. We can expect more of these types of announcements, and the market has reacted very positively. And we can probably expect to see, you know, more of that coming, you know, in the future weeks. Now different organizations have different perspectives, of course.
The IMF's World Economic Outlook came out recently and had forecasted what the expected impacts would be to GDP across different major countries. And their assessment of the US was more negative relative to other trading partners. If you compare their expectation from pre-tarffis to post tariffs, for GDP was about 0.9% lower. If you compare that to, China, Canada, Japan, they're all around that minus 0.5% range.
So still substantial, but, you know, they may expect the impact to US to be somewhat negative. And so the Fed is certainly paying attention to this.
For those of you who are paying attention, the Fed had their meeting this this past week. And, to no one's surprise, there was no change to the Fed funds rate. No one was expecting a change from the current rate, which is between 4.25% and 4.5%. But there has been some shifting in the dialogue as there always is.
I think what's most notable about what Fed Chief Jerome Powell talked about is that they're not looking they're not anxious to lower borrowing costs until there's more certainty on the direction of monetary trade policy, which, of course, will come from the White House. So in some sense, he's kinda passing, you know, the buck the attention back to the administration, which, of course, a couple weeks ago, you know, kind of pressured, the Fed to lower rates now as a reaction to the uncertainty. And so, I think, the Fed is definitely looking for that higher conviction, and it's going to be, you know, based upon their assessment of whether or not, you know, the current tariffs are going to force, you know, the economy into an actual recession, in which case they would react by cutting rates.
Or on the flip side and probably arguably more troublesome is if it actually became so inflationary that the Fed was not able to cut rates or even worse had to, rise and increase rates sometime in the short term. The market certainly would not react positively to that type of news. And so if you look at the Fed futures today, no rate cut is expected until July. That's a little bit of a shift from recent months where many previously had been expecting a rate cut in June.
You know, quick recap of the markets. The US markets continue to recover from the lows that were reached about a month ago, since April seventh. S&P 500 is up around 13%. Nasdaq is doing even better at around 16%.
If you look at the S&P year to date, it's only down a couple of percentage points. If you combine that with the overall performance on the Bloomberg US Aggregate Bond Index, that's up around 3%. So, you know, someone who's a 50/50 investor, 60/40, kinda close to flat, which is, you know, a far stretch from where we were just a few weeks ago. You know, if you look at, inflation, we'll find we'll wrap up with this.
Inflation core PCE came in, at around 2.6% year over year. You know, it's still higher than where the Fed wants it to be, but it's holding relatively steady. You know? So as unless we see some sort of surge, some sort of unanticipated, spike, in the inflation numbers, you know, the Fed, as I mentioned, is going to be patient.
They're going to look for conviction. And as long as we don't see that surge in inflation, I think we can expect, you know, the next move from the Fed to be one lower whenever that might be.
Right now, we're expecting a couple of rate cuts, this year later in the second half.
That's all for today. Hopefully, you found today's update, useful. And as always, if you have questions, please reach out to your financial adviser. Thanks for listening. Hope you all have a great day.
This information is not intended as a recommendation. The opinions are subject to change at any time and no forecasts can be guaranteed. Investment decisions should always be made based on an investor's specific circumstances. Investing involves risk, including possible loss of principal.
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