In case you missed last week
- Blacor Investments
- May 9
- 4 min read
The SP500 has been on a 9 day win streak, and as Goldman Sachs points out, that has only happened 14 times since 1970. Much of the Liberation Day nausea has settled down as the earnings season gets underway and investors are reminded of the fundamentals driving valuations. So far there has been a blended growth rate of 12.8% in earnings vs. the 7.2% expected. Several companies including MSFT, PLTR, and AAPL have raised guidance while several other companies are more cautious.
Overall fundamentals last week anchored the markets and provided the scaffolding to reverse the recent correction. It has been choppy, but if you sold out in March you may have just missed the best trading days of the year and one of the best climbs since 2004. The one outlier for the week was a 0.3% contraction in GDP, but traders and the media are fairly split on whether it was good or bad.
Fortunately, GDP is so easy a 5th grader could do it. It is made up of four categories: consumption, government spending, investment, and net exports. Just add up all the numbers and voila you have the country’s Gross Domestic Product.
· Consumption: 20,526.3
· Government spending: +5,140.5
· Investment: +5,573.2
· Net Exports: -1,262.3
Good math should yield 29,977.7 which is actually 253 billion more than last quarter.
But wait a minute if this number is higher than last quarter why did it show negative growth?
Well A fifth grader might not know that the annualized GDP rate is seasonally adjusted. So when we see a decline of 0.3% it is compared to how things were in Q1 2024 and the decrease in net exports from Q1 2024 to 2025 weighed down the GDP growth rate by nearly 5%. The other three categories just couldn’t lift the numbers to offset the decline and we are left with a contraction for Q1 2025 which is somewhat like the market stepping on a Lego as it gets out of bed. Painful, inconvenient, but not going to stop it from getting to work.
As we get to work on the other GDP numbers, notice how consumption has increased for the past few months. Goods and Services are still increasing quarter to quarter. The category that stands out from a behavioral perspective is the number of Light trucks sold. In Q1 2025 they began to rival the Covid helicopter money of 2021.
Any behavioral economists would tell you, when people feel good, they spend more. More money affords a bigger house, more stuff, a new car... It’s the baseline assumption for Milton Freidman’s monetary theory and even some Keynesian economists will give credit where its due (pun intended). When people can afford more, they typically buy more. As new light truck sales continues to grow, we should take it as a sign of strength, especially if we compare this season to the highs during covid with 0% rates and free government checks in the mail. This is a sign that our economy is much stronger than what the media may say about the GDP rate, it also gives an explanation for the explosion in imports. More vehicles sold means more parts and materials. If automakers want to keep up with demand, they must preempt the tariffs or risk leaving chips on the table. Net exports tanked this quarter, but it wasn’t because we’ve exported less, it is because US companies are preparing to meet increasing demand. The markets may have rightly responded to liberation day tariffs taken at face value, but as long as they remain a negotiating tool rather than a revenue tool they should end swiftly with a deal in hand. In the meantime, investors may benefit the most from the president’s advice to just “Be Cool,” at least those who stayed invested last month certainly did.
Noteworthy Links and sources:
Gross Domestic Product, 1st Quarter 2025 (Advance Estimate) | U.S. Bureau of Economic Analysis (BEA)
my.apps.factset.com (United States Top Stories 5/7/2025)
BLACOR USA (Blacor Investments) offers Securities through International Assets Advisory LLC (IAA) an Independent RegisteredBroker/Dealer - Member FINRA/SIPC. Investment Advisory Services may be offered through International Assets InvestmentManagement, LLC (IAIM) or Global Assets Advisory, LLC (GAA), - SEC Registered Investment Advisor. IAA, IAIM, and GAA are affiliated entities.
BLACOR USA is independent and unaffiliated with IAA, IAIM, and GAA.
The information contained herein is obtained from carefully selected sources believed to be reliable, but their accuracy or completeness is not guaranteed. This report is for informational purposes only and is not a solicitation or a recommendation that any particular investor should purchase or sell any particular security. All expressions of opinions are subject to change without notice and are those of BLACOR USA. Investments listed herein may not be suitable for all investors. Past performance may not be indicative of future results.
