From the studio
Video: CIO's Kiran Ganesh on US exceptionalism (3:37)

Thought of the day

US stocks recovered from an early sharp decline on the back of weak US first-quarter GDP data to close higher on Wednesday. Sentiment improved on positive tariff headlines, with further support coming after the close from upbeat corporate earnings.

After trading as much as -2.3% weaker, the S&P 500 closed 0.2% higher on Wednesday, which meant that the index ended April just 0.8% lower.

US GDP contracted 0.3% quarter over quarter at an annualized rate in the first quarter of 2025, the first negative growth rate since the first quarter of 2022. But we think the market鈥檚 rebound after the initial headlines is justified by a number of supportive factors.

The details of the GDP report were more encouraging than the headline drop. The contraction in GDP was driven by a 50.9% annualized quarter-over-quarter surge in goods imports, which resulted in a 4.8-percentage-point drag on headline GDP growth. But this jump reflects front-loading ahead of tariffs. Moreover, consumption (1.8%) and fixed investment (7.8%) growth were both solidly in positive territory, and from this it appears that the underlying business cycle remains healthy. The Employment Cost Index, also released Wednesday, rose by 0.9% quarter over quarter in the first quarter, the same as in the last quarter of 2024, indicating that wages continue to rise at a solid pace. This should underpin US consumption.

Given these details, we are not overly concerned about the negative GDP print. What is more concerning is the potential impact of tariffs, which is likely to cause a more substantial economic slowdown in the second half of 2025. Recession fears remain a focus for investors, and the amount of Federal Reserve rate cuts expected by the December meeting based on futures pricing increased to 102 basis points on Wednesday.

Tariff headlines were encouraging. Comments from US Trade Representative Greer that 鈥渨e have deals that are close鈥 helped drive the rebound in stocks later in Wednesday鈥檚 session. Chinese press reports also suggested that the Trump administration has reached out to China to initiate trade talks, while Bloomberg reported that the European Union is set to make new proposals to the US on trade in the coming days.

Megacap tech earnings were positive. After the close, Microsoft and Meta both delivered strong earnings. Microsoft beat earnings and revenue expectations driven by cloud growth. Meta also beat revenue expectations while increasing its planned 2025 capex. Without taking single-company views, the results bolstered confidence in the fundamentals underpinning the AI trend, with both companies鈥 share prices rising in after-hours trading.

Markets are now factoring in both a Trump and a Federal Reserve "put," in line with our base case that tariffs will be reduced from current announced levels over the remainder of the year and that the Fed will cut interest rates further in 2025. However, with uncertainty still elevated around trade, the economy, and Fed policy, we expect volatility to remain elevated as well. We view US equities as Attractive, with a year-end S&P 500 target of 5,800. Phasing into the market can be an effective way to position for potential medium- and longer-term gains while managing timing risks. Capital preservation strategies can be another way to retain exposure to potential gains while managing near-term risks of a renewed equity declines.

We continue to see strong long-term potential in our TRIOs鈥 Artificial intelligence, Longevity, and Power and resources. While companies exposed to each of these ideas have been caught up in recent derisking, we expect structural trends to be the biggest drivers over the long term, and the recent sell-off provides a potential opportunity for investors to build structural exposure.