The Recession Countdown Has Begun
GDP fell in the first quarter... Here's why... Weighing panic versus patience... Warning signs are adding up... Last call: The 'Mar-a-Lago Accord' story you need to hear...
We're halfway there...
This morning, the Bureau of Economic Analysis reported that U.S. GDP shrank by 0.3% in the first quarter. If this repeats, we'll enter a "technical" recession, meaning two straight quarters of negative GDP growth.
This is the first time in three years that Uncle Sam has reported a GDP decline for a quarter. The major U.S. stock indexes moved lower today after the report and finished mixed.
One reason for the drop in GDP growth was that businesses scrambled to buy imports before new tariffs went into effect. Imports soared by about 40% in the first quarter, with a more than 50% increase in goods imports to an all-time quarterly high. In GDP calculations, imports get subtracted from a country's output... In this case, this flurry of imported goods took 4.8 percentage points off the headline GDP number.
The other significant dent to first-quarter GDP came in reduced government spending, which accounted for a 0.25-point decrease. That could come down to the Department of Government Efficiency ("DOGE").
Consumer spending also cooled versus the final quarter of 2024, though rose 0.7% in March as people decided to buy things ahead of tariffs.
Despite the obvious effects of tariffs and DOGE cuts, President Donald Trump disputed the White House's influence on anything. He wrote on social media this morning, "This is Biden's Stock Market, not Trump's" and it "has NOTHING TO DO WITH TARIFFS."
Trump continued on the subject later in the day, speaking during a "public" Cabinet meeting about first-quarter U.S. economic performance. "This is Biden," Trump said, "and you could even say the next quarter is sort of Biden because it doesn’t just happen on a daily or hourly basis."
OK then.
This has been coming...
As I (Corey McLaughlin) wrote back on March 3, when the S&P 500 Index was just a few percentage points off its last all-time high from mid-February...
The Atlanta Fed's GDPNow tracker (updated today) is projecting first-quarter GDP at negative 2.8%.
It shows net exports down 3.6% from the fourth quarter of 2024. That's a strong sign of inventory build-up to combat the potential higher import costs tied to tariffs.
So the concept of tariffs is having an undeniable impact on businesses' behavior, though it could be short-lived until the market gets some more certainty on future trade policies.
In the weeks since then, the market still hasn't gotten complete clarity. The threat of tariffs definitely dented GDP in the first quarter, and outstanding questions about them could keep the damage coming.
But now, with "Liberation Day" behind us, the latest story seems to be that imports are falling – with incoming shipments to U.S. ports down by about 30% in some cases. As Stansberry's Investment Advisory lead editor Whitney Tilson noted in his free daily newsletter today, "Keep in mind that this will soon reverse in a big way..."
In any case, the threat of tariffs... their initial implementation... and the lack of certainty about how they'll look in the future have distorted the economy.
If that negative short-term picture continues in the current quarter, we'll have ourselves a technical recession to talk about in three months, just like we did at the start of 2022. Second-quarter GDP is currently projected at 2.4% growth, though earlier estimates showed a decline.
This could all change... Maybe we'll soon see new trade deals... companies will get greater clarity on their import costs... and they'll end up with the confidence to resume long-term investments in their businesses.
The spin zone...
Of course, the other side of this is the longer-term idea of bringing back manufacturing to the U.S.
Trump adviser Peter Navarro went on CNBC this morning to bring up that point, saying of the GDP report, "That's the best negative print I have ever seen in my life" and pointed to a "22% increase in domestic investment."
I would personally love to see this continue, for buildings like semiconductor factories to dot the U.S. landscape... and for a new generation of American workers to have well-paying jobs making real things. I want them to be able to afford homes and not finance their Froot Loops, as we put it yesterday. But the road there, while intending to make imports subservient, likely won't be smooth.
"Our Country will boom, but we have to get rid of the Biden 'Overhang.' This will take a while... BE PATIENT!!!" Trump wrote on Truth Social today.
Whatever your political persuasion... patience isn't the worst advice right now.
As we've also been saying, Mr. Market's biggest panic about tariffs may be behind us.
After extreme volatility spikes like we saw recently, odds point to strong market returns over the next year or two and beyond. We're comfortable holding high-quality stocks that will keep compounding and sell in-demand products or services, no matter what direction the economy is going.
Also, the S&P 500 is up about 11% since Trump announced his "90-day pause" on exceptionally high tariff rates on April 9.
That said, risks persist...
As our Ten Stock Trader editor and technical analyst Greg Diamond wrote today and discussed on his weekly free Diamond's Edge Live video this afternoon, stocks have "encountered at least a short-term high."
Watch a replay of Greg's video here. Here he is offering his thoughts on popular defense stock Palantir Technologies (PLTR)...
We aren't expecting smooth sailing in the weeks and months ahead, either. The market's expectations for trade deals may not be met... or the knock-on consequences of what we've already seen could be greater than expected.
From a technical perspective, right about now could go down as an important make-or-break moment for U.S. stocks this year.
One warning sign...
Our colleague Mike Barrett pointed out today in his Select Value Opportunities update that his "ultimate stock warning is flashing." That is, a downward sloping 200-day moving average ("200-DMA") in the S&P 500, a signal of a longer-term downtrend in the U.S. benchmark.
Here's a one-year chart showing the S&P 500 and its 200-DMA in blue and shorter-term 50-DMA in red...
As Mike explained...
An upward-sloping 200-DMA indicates that the S&P 500 is rising, which is the normal pattern. It means investors are broadly accumulating shares because they anticipate that revenue and profit margins will grow and push intrinsic values up. (Before April 3, the S&P 500's 200-DMA had risen for 458 consecutive sessions.)
A downward-sloping 200-DMA signals the opposite – that investors are broadly selling shares because they anticipate that revenue and profit margins will deteriorate and push intrinsic values lower.
Remember, markets always look ahead. And investors don't wait until a company publishes quarterly financial results to confirm their expectations... They sell (or buy) beforehand and make further decisions once the latest results (and guidance) come out.
Our job now is to monitor the slope of the 200-DMA in the same way we track the number of negative YTD closes. As of last Friday, the slope of the S&P 500's 200-DMA has fallen in 16 consecutive sessions.
The last time the S&P 500's 200-DMA "turned over" like this was (again) in the first half of 2022, right as a major leg down in the index took shape into summer. That year's bear market didn't bottom until that October.
Looking ahead, we'll be watching for more indications of a potential recession... persistent trends in slowing consumer spending, for example, and stagnant economic growth in general. That's essentially what has been happening in the past three months.
The 'Starbucks indicator' keeps flashing...
The "Starbucks indicator," a favorite of our Stansberry's Credit Opportunities editor Mike DiBiase, continues to signal that caution is warranted...
The coffee retail chain reported its latest quarterly earnings yesterday and said that same-store sales fell for a fifth straight quarter. This is telling, because as Mike explained in his December issue of Credit Opportunities...
When sales at the coffee giant's stores that have been open for more than one year fall from the previous year, it signals consumers are tightening their belts and eliminating expensive, discretionary treats.
Consumer spending accounts for around 70% of U.S. GDP. As we've said before, folks getting a cheaper morning coffee won't doom the economy on its own. But it tells us something about what else people might not be buying (and highlights that there are reasons for it).
As we shared in our February 6 Digest, Mike's Starbucks indicator has been a spot-on signal of the past two "official" recessions in 2008 and 2020 and we said...
Right now, this indicator is flashing again. Look at this chart that Mike shared...
Starbucks said its same-store sales fell 1% in the quarter. That's not as bad as the 4% decline in same-store sales the quarter prior, but it's still not growth. The company said in its quarterly government filing...
We expect that the balance of this fiscal year will bring some challenges as we navigate a dynamic macroeconomic environment, including tariffs and volatile coffee prices.
Shares of Starbucks fell almost 6% today and are down 30% since a near-term high on February 28. The company last made a new all-time high in 2021.
Job openings fell, too...
In March, 7.2 million U.S. jobs were available for new hires, according to the Bureau of Labor Statistics' Job Openings and Labor Turnover Survey ("JOLTS"). That was down from 7.5 million openings in February and 8.5 million in March of last year.
Last month's new hires did hold steady at about 5.4 million. After hitting the lowest level since the pandemic last June, 5 million, this number has recovered to between about 5.3 million and 5.4 million in each of the past nine months.
Similarly, in March, separations totaled 5.1 million, just about in line with the range over the past nine months.
We haven't left the "stuck" labor market just yet by this measure. But we could be in for a change soon...
The JOLTS data is outdated for today's economic environment. Since it tracks openings, hires, and separations through the end of March, it doesn't include the economic impact of April 2's Liberation Day tariff announcement.
We'll have to wait until the next release to see how tariffs have changed businesses' short-term staffing plans. But as of March, we were still in the low-hiring, low-firing environment that the economy has lived in for the past several months.
Turning to jobs data that does include tariff impact...
This morning, payroll processor ADP released its monthly private-sector employment report for April. This month, the economy added 62,000 jobs, according to ADP's survey, only about half the estimate for 125,000 jobs and down significantly from March's reading of 147,000 additions.
That was the lowest level for job gains since July 2024. The economy is still adding jobs... But since hitting a recent high of more than 230,000 in October, the pace of new jobs has steadily slowed.
In April, four out of the 10 sectors ADP tracks – information, education and health services, professional and business services, and other services – actually lost jobs in April.
Of course, tariffs were to blame. As ADP Chief Economist Nela Richardson said in a press release...
Unease is the word of the day. Employers are trying to reconcile policy and consumer uncertainty with a run of mostly positive economic data. It can be difficult to make hiring decisions in such an environment.
So the uncertainty and volatility we've seen over the past month is not limited to the stock market. As we've highlighted, several companies are no longer predicting their earnings because they simply have no clue how this is going to shake out.
The same can be said for the Federal Reserve...
We've noted how the Fed is in "wait and see" mode when it comes to tariffs. Chairman Jerome Powell and other Fed speakers in recent weeks have said that the central bank needs to see more data before cutting rates.
The Fed is in a tough spot...
Hiring is slowing down, and the U.S. economy just contracted for the first quarter in three years.
The Fed also lowered its own expectations for economic growth in 2025, while raising its estimates for inflation and the unemployment rate.
As Powell has said, slower growth and higher inflation require completely opposite responses (rate cuts to boost economic growth... and hikes to rein in inflation).
So the Fed is looking for a clear answer on which priority to tackle first.
Waiting too long to respond would mean the Fed is behind the curve (like it was with rate hikes to stop inflation in 2022).
Still, we don't expect the Fed to act at next week's policy meeting, and maybe not even in June... The market is only pricing in a 5% chance of a rate cut next Wednesday, with a 65% chance that the first rate cut this year comes at the June meeting.
Finally, today, last call...
If you're looking for a blueprint to protect and grow your wealth in this environment, look here... We've told you a few times about Dan Ferris' new "Mar-a-Lago Accord" market alert. As he put it in a note to Stansberry Research readers today...
I've tried to make this impossible for you to miss...
But if it slipped past you – I don't want you to lose your opportunity entirely...
President Donald Trump's 101st day in office kicks off today.
And I believe his next memorandum or executive order could quickly send my top stocks soaring... while the overall market struggles to reverse its losses.
Dan's briefing will go offline at midnight Eastern time tonight. Don't miss it. He explains what's really going on with the economy today... and offers up a four-step plan to protect your portfolio from what he says could be losses of 40% over the next few years.
Click here to learn more... And for Extreme Value subscribers and Stansberry Alliance members... feel free to watch the presentation, but also know you already have access to the research Dan talks about right here.
New 52-week highs (as of 4/29/25): CME Group (CME), Cencora (COR), WisdomTree Japan SmallCap Dividend Fund (DFJ), Dimensional International Small Cap Value Fund (DISV), Enel (ENLAY), iShares MSCI Germany Fund (EWG), FirstCash (FCFS), K+S (KPLUY), VeriSign (VRSN), and Vanguard Short-Term Inflation-Protected Securities (VTIP).
In today's mailbag, feedback on yesterday's Digest, which included a discussion on Amazon's rumored "tariff fee" and a response to mail from earlier this week... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.
"I think I can speak for most Amazon customers and say that it would be helpful to see how tariffs affect the prices at which goods are sold. If Amazon is not going to do that, I would hope that someone like Walmart or Target or Alibaba would provide the information." – Subscriber Louis W.
"'RE: Why don't we ask AI if tariffs are good or bad and be done with it? – Subscriber John S.'
"We already know tariffs are bad for everyone. But that doesn't mean reciprocal tariffs aren't useful, especially as negotiating leverage. In addition, we need to account for the benefits to national security in driving the manufacturing of strategic healthcare and technology supplies back onshore. We cannot afford to depend on foreign sources, subject to the political whims of the current administration, to supply critical items to the USA." – Subscriber Mike M.
All the best,
Corey McLaughlin and Nick Koziol
Baltimore, Maryland
April 30, 2025