Check Back in Two Weeks

Trump's timing is becoming clearer... History, judgment, and skepticism... In the meantime... Bad news is being overlooked... A 'relief rally' at the very least... Big Tech is back... AI and GDP...

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Don't say he didn't tell you...

Last night, President Donald Trump went old-school and called into a primetime TV show. At the other end of the line was his old friend Bill O'Reilly in conversation with Chris Cuomo and Stephen A. Smith... plus a live studio audience in front of cameras on NewsNation...

The interviewers asked about tariffs as part of a series of thankfully well-informed, honest questions. And they elicited the kind of unvarnished language that got Trump reelected in the first place. He said about tariffs and potential trade deals...

I know what I'm doing, perfectly. It's a little complicated subject. I've got to explain it. I've got to have people that can explain it, but I can tell you that right now we have over 100 countries that are calling us morning, noon, and night dying to make a deal.

We're in a great position of strength. We'll make great deals, and where we don't make deals, Stephen, we're just going to set the deals.

We'll say, "That country is going to pay a 20% tariff. That country is going to pay 15%." Another one is going to pay 30% or 40% because we have a big deficit with a certain country... I could set those deals tomorrow and do away with negotiating, but we're negotiating...

Specifically, he said, he's working with South Korea, Japan, and India. O'Reilly then told Trump he'd heard that those deals were already done. They are "potential deals," Trump insisted, and added, "I'm in less of a hurry than you are" to announce anything.

Then came what I (Corey McLaughlin) consider the key exchange for anyone interested in a potential catalyst for the near-term direction of the markets...

O'Reilly: Remember, once you announce, the stock market's going to go up 2,000 points and people will relax.

Trump: That's OK. It can wait two weeks.

Don't say he (or we) didn't tell you. It was about two weeks ago that Trump also said a deal could come in "three or four weeks." So, it sounds like there's a method here and an "uncle" point the White House doesn't want to cross in the entire situation.

Of course, nobody can tell you for sure what's going to happen next...

And if they claim to be certain, be all the more skeptical.

This is all to say that perhaps trade deals with those countries won't materialize. We never take any politician's words as gospel. But our job, in a way, is to read into all of this. Balance risk and reward.

And we do have history to look back on, and a sense of judgment.

I'm willing to bet a few significant trade deals will get announced sometime this month. However, an agreement with China – the world's second-largest economy – seems more of a distant hope. Its government so far has been content to sit back and watch Trump negotiate down his 145% tariff on his own.

In the meantime, Trump also repeated last night that he's willing to be "flexible" during his "transition period." He doesn't want to seriously hurt U.S. automakers, Trump said, so he has given them up to two years to ensure that all of their parts are made domestically. That signals wiggle room with other industries and businesses to avoid the "worst case" scenario.

Remember what we've recently just seen and already know about Trump. One of this president's biggest concerns is being remembered like Herbert Hoover, who presided over tariff policy and the beginning of the Great Depression. Nobody wants to be known for crashing the economy, be it perceived or real.

Trump paused many tariffs for 90 days soon after the bond market signaled concern about economic growth... and the benchmark S&P 500 Index fell about 20% on an intraday basis. That's not a coincidence.

That's not to say there still aren't concerns...

We just got done writing yesterday about a first-quarter GDP number that puts the U.S. economy halfway to a "technical" recession. That performance is mostly from the threat of tariffs and their earliest days of implementation.

Savvy companies spent time and effort at the end of last year and early 2025 front-running potential tariffs and loading up on inventory to avoid higher import costs. It added up to an all-time high of U.S. imports in the first quarter of 2025, which subtracts from GDP.

Now, as people wait in limbo about potential trade deals, particularly with China, we haven't yet seen the impact of a dramatic decline of U.S. imports to West Coast ports yet. There will be some drop – both in prices and supply... It's just a matter of how much.

On the other hand, second-quarter GDP could be boosted by a dramatic decrease in imports just as an increase dinged the first quarter. But in the meantime, concerning signals have been piling up. We wrote about this yesterday.

More bad news showed up today.

Weekly jobless claims for last week (announced this morning) surged to 241,000, more than Wall Street expected... And McDonald's (MCD) same-store sales dropped by their largest amount since 2020...

Yet, notably, the markets rose despite these negative headlines.

The 'good' news is that this uncertainty should be rectified... eventually...

It might happen in a big way in two weeks, or piecemeal in dribs and drabs as Trump and the White House talk with foreign officials and business leaders. However, we also wouldn't rule out another bout of panic around the time the "90-day pause" is due to end around July Fourth – particularly as it relates to trade with China.

We suspect that a 40% or so tariff on China, as Trump alluded to last night, would rattle the market. We don't see many investors seriously considering this possibility.

Also, remember that while it might not feel like it, things are going on besides tariffs.

The pace of inflation has been coming down. Oil prices are trading at multiyear lows. The unemployment rate is more or less stable, though job seekers have fewer opportunities nowadays. And the real estate market has ground to a halt in many parts of the country due to higher interest rates, ever-present tight supply, and unaffordability for many people.

This might sound recessionary, but it could also be fodder for some bulls and the forward-thinking stock market. It could lead the Federal Reserve to lower interest rates at some point this year. Wall Street is betting on a rate cut coming by the second half of the year.

For now, at the very least, a 'relief rally' is ongoing in the market...

The S&P 500 closed higher for an eighth straight day today.

The last time we saw the U.S. benchmark up eight days in a row was in August, a stretch that followed an 8% drawdown in the index and even bigger losses in richly valued tech stocks...

The time before that was in October and November 2023, when U.S. stocks began a recovery from what had been a roughly 15% correction. A lot of people have already forgotten about that one since the S&P 500 ended up returning about 25% in 2023.

And like we saw during these times – all part of a bull market that began in late 2022 that has lasted through today (just barely, as the S&P 500 lost 19% from its previous all-time high on a closing basis) – large-cap tech stocks are moving higher again and leading.

Big Tech bullishness is back...

As we mentioned recently, this is a huge week for corporate earnings, with more than a third of S&P 500 companies releasing quarterly updates. That includes some of the biggest companies out there, including several "Magnificent Seven" names.

It has been a good 24 hours for a few of them.

After the close yesterday, we got earnings from both Microsoft (MSFT) and Meta Platforms (META). Investors liked what they heard – with Microsoft shares up almost 8% and Meta rising 4% today.

Let's start with Microsoft...

The software giant beat Wall Street's estimates for both earnings and revenue in the quarter, and its sales forecast was better than expected, too. Also, Microsoft expects its Azure cloud business to grow 34% to 35% in the next quarter, above the estimate of 31.5% growth.

As for Meta, the social media company also topped Wall Street's estimates for earnings and sales. The company reported 3.43 billion daily active users, beating expectations, and added that its AI digital assistant now has nearly 1 billion monthly users – up from 700 million at the end of the last quarter.

Those are solid numbers for the quarter. And there was no reason for investors to head for the exits in the results or guidance. But we have our eyes on a different metric for Big Tech – AI investment plans.

They're still spending on AI...

In the most recent quarter, Microsoft spent $16.75 billion on capital expenditures ("capex")... up 53% from the same period in the year prior. And Meta spent more than $13 billion on capex, just about double the same quarter last year.

This isn't all AI investments. But AI is one of these companies' biggest capex expenses.

The spending isn't done yet...

Meta raised its capex forecast for the year to a range of $64 billion to $72 billion – up from $60 billion to $65 billion – to account for higher costs in data-center hardware.

And Microsoft is still on track to spend more than $80 billion on capex in the 2025 fiscal year (which ends in June). While it hasn't yet provided a specific forecast for 2026, Chief Financial Officer Amy Hood said Microsoft will spend even more next year.

In short, tech companies aren't worried about an AI bubble just yet. And they're still spending... As we noted last week in our Mag 7 earnings preview...

Alphabet, Amazon (AMZN), Meta Platforms (META), and Microsoft (MSFT) have pledged a combined $325 billion in spending on AI infrastructure for 2025, and the scope of the return on that investment isn't clear.

And the economy is grateful for that investment...

As Bespoke Investment Group highlighted in a post on social platform X last night, data-center investment played a huge part in yesterday's GDP report. "Nonresidential fixed investment in IT equipment" added a full percentage point to GDP in the first quarter.

While that doesn't explicitly say AI and data-center investment, we can assume that given the hundreds of billions being pledged. So without the Mag 7 and the AI megatrend, yesterday's GDP report could've been even worse.

Take a look at the chart Bespoke shared...

AI data centers boosted this component of GDP to the highest level ever, according to Bespoke. And the last time IT equipment came close to this level was in 2000 – near the peak of the Internet bubble.

Only time will tell if the companies end up pulling back on AI investments if they don't have a clear path to profitability. That would be a surefire sign that AI spending has gone too far and the "bubble" may be popping.

We don't love seeing a correlation to the peak of the Internet bubble. But for now, the biggest companies in the U.S. are still spending big, trying to get a leg up in the AI race. And that was good enough news for a market looking for anything positive.

New 52-week highs (as of 4/30/25): Alpha Architect 1-3 Month Box Fund (BOXX), CME Group (CME), Cencora (COR), FirstCash (FCFS), K+S (KPLUY), London Stock Exchange Group (LNSTY), Lonza (LZAGY), Republic Services (RSG), Sandstorm Gold (SAND), VeriSign (VRSN), and Vanguard Short-Term Inflation-Protected Securities (VTIP).

In today's mailbag, feedback on yesterday's edition... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"Corey, I understand the historical significance of your Starbucks indicator, but Starbucks is struggling right now and undergoing a significant refocus under a new CEO. These free refills they're advertising now make me question the wisdom of hanging our hat on their sales numbers." – Subscriber R.K.E.

"Dr. Copper looking sickly after [yesterday's] 5.5% decline..." – Subscriber Ryan E.

"In today's briefing you alluded to [Trump's] recent statements in Truth Social about the first quarter's economic performance was because of Biden and the second quarter's will also be on Biden. If memory serves, during Trump's first term he took full credit for the good reports on the economy following Obama's presidency. I wonder which conclusion we should believe." – Stansberry Alliance member Frank C.

"As a longtime subscriber to your service and with much respect for Porter Stansberry, I respectfully disagree with this report and the majority of [mainstream media] piling on to Trump First 100 Days.

"Please refer to the report from Larry Kudlow this afternoon where there have been errors discovered in the accounting of imports and inventories. Once these are officially corrected, Larry stated that real GDP grew by 3% in 1Q25.

"Please do the deep dive on this and get all of the facts correct.

"There is no recession on the horizon." – Subscriber Peter D.

Corey McLaughlin comment: Thanks for all the notes.

Peter, I know what you are referring to.

Kudlow – who incidentally we've interviewed in these pages before – cited "core" GDP as growing by 3% in the first quarter, which is true. That's because it strips out the imports and the tariff front-running that made overall GDP negative, which we wrote yesterday.

So, I wouldn't say that calling GDP growth negative in the first quarter is an "error." Both conclusions are true, but it depends on what numbers you or I want to look at. I go with the headline number because it includes everything, even if it's not perfect.

Now, that said, it's very possible the import/export impact will turn completely around in current second-quarter GDP numbers (as declining imports actually add to overall GDP). That's a possibility we outlined in today's issue, and if it comes to fruition, we'll certainly say so. And in that case, we wouldn't call it a recession.

In either case, the important point, as we tried to make yesterday, is that tariffs and the threat of them have distorted things...

A few months ago, we could see that the negative GDP print would be coming because of tariff front-running, so any reaction to it yesterday was either "too late" or overblown. We'll say the same for the second quarter, if declining imports contribute to a positive GDP and it's celebrated too much.

All the best,

Corey McLaughlin and Nick Koziol
Baltimore, Maryland
May 1, 2025