Time flies when you are having fun. Like January 20th seems like just yesterday and already we’ve had the first 100 days of Trump 2.0. And if the next 1,360 are as equally enjoyable, shares in Kenvue should do well (maker of the hair-loss treatment Rogaine that was spun off from J&J in 2023). Indeed, as I mentioned on this week’s conference call (click here for recording), one has to go way back in time to find a first 100 days that comes close to not only the negative performance in equities, but also the economy. 

As the above chart shows, this has hardly been a quiet ride for investors since Trump put his hand on the bible and at the time of writing, even with the recovery over the past few weeks, the S&P500 is still down close to 6% from inauguration day. If we take it back to the S&P’s record high on February 19th, the loss is closer to 8%. And it’s not like the new president was dealt a bad hand in terms of the state of the economy, though it was already entering a moderation phase based on the lagged influence of tighter monetary policy over the preceding couple of years.

Still, as the above chart shows, market performance has not only underperformed the first 100 days of Biden’s presidency, but that of Obama’s second term and also George W Bush’s back at the start of 2005 (which wasn’t a great quarter, though at least markets remained in recovery phase after the 2000-2002 meltdown). Perhaps we just needed a little more patience for the big-idea policies to take shape? In other words, instead of these past 100 days being the appetizer for a main course of continued erosion, maybe it was just a late-night drive through snack on the road to equity market glory.

Some argue that the initial jolt that investors felt stemmed purely from just uncertainty over how policies might impact the economy. In effect, the volatility in equities reflected the decline in confidence among businesses and consumers. In the chart below, I illustrate the downward trend since the start of the year for some of the key sentiment metrics we follow, including the Conference Board Consumer Confidence index, the University of Michigan Consumer Sentiment and the ISM Manufacturing PMI. In the case of the consumer confidence index, the drop to 86 in April represents the lowest since May 2020, which is pretty remarkable when you consider we essentially shut down the U.S. economy back then.

This past week, the U.S. Treasury Secretary said that he didn’t care much for soft survey data and that the actual measures of economic performance were looking just fine. There are, of course, inherent dangers in driving a car using the rearview mirror, unless one actually is going in reverse.  In previous commentaries, I have talked about how we could be entering the next phase of this circus – where deterioration in ‘soft’ indicators, like sentiment surveys, starts to be reflected in more real economic metrics. This week may have just been the inflection point.

U.S. GDP growth for the first quarter came in at minus 0.3%. Yes, the economy contracted for the first time since 2022 – the year that we saw the most aggressive monetary policy tightening phase in decades and the worst bond market performance in close to 50 years. To be fair, most of the decline in GDP stemmed from a massive surge in imports, which drove the gap between real exports and imports into negative territory.  As a recap, total GDP is simply consumption plus investment plus government spending plus inventories plus the trade gap. The only other category that saw a contraction last quarter was government spending which reflects some of federal government cutting executed by DOGE.

The surge in imports was to be expected considering that companies and individuals generally act in a rational manner. If the president campaigns on waging tariff war with its biggest trading partners and tells you this is going to happen very early in his next term, then you are going to stock up on finished goods and manufacturing inputs before prices go up.  This is why we saw a rebound in the Baltic Dry index at the start of the year which reflected the increased demand (and cost) for shipping. With most of that pre-stocking now done, it’s logical to assume that the trade gap will normalize in the second quarter and not be a drag on overall economic growth.

The problem is that other components of GDP may not be that healthy. Inventories, for example, could see a sharp drawdown this quarter as companies and retailers deal with choked-off supply coming into the country. Even on its own, this could create another quarter of contraction in GDP. As for investment, this will likely be a mixed bag. Earnings results from the largest tech firms this week highlight that spending on AI remains strong, but the story in manufacturing and other areas may not be as positive.  And considering that Trump is not slowing down on his government rationalization goals, even with Elon leaving the building, public spending is probably going to remain a drag on GDP for some time.

That leaves the consumer.  Yes Mr. Bessent, consumer confidence data does not always have a tight correlation with actual personal expenditures. In Q1, we still saw growth in consumer spending, however, growth was less than half of the 4% pace seen in the final quarter of last year. What’s important here is that we know many consumers were probably buying ahead of the imposition of tariffs (to the extent they still had money left over after egg shopping – a great article by Ally on this subject last week, by the way).

We also know that consumer expectations of inflation down the road have moved higher, according to the latest University of Michigan figures. Again, if you believe prices will be higher in the future, you should be buying today and not later. If that is happening, it didn’t lead to robust spending in the first quarter. The question is why? One possible answer lies in the chart above.

Here I have graphed initial jobless claims over the past year, which are released every week.  This the number of Americans who are filing for unemployment insurance. In the first several weeks of the year, we did see initial claims move higher, but then they stalled and headed lower into April.  In the past two weeks they have moved sharply higher and are on par with the February and November highs.  The more relevant line on this chart is the blue one, which shows continuous claims or the total number of Americans receiving benefits.  This number has continued to move higher and is now back to where we were coming out of the pandemic.

If labour market conditions show further deterioration in the coming weeks and months, the consumer engine of the economy will run out of gas. Speaking of which, gasoline prices have edged lower and that’s a good thing, but not enough to offset the effect of losing one’s job. Ally and I have talked about the potential for stocks to experience another leg lower on economic fundamentals and with what we have seen these past 100 days, there should be no confusion over what to do if trends don’t change.

On behalf of the Pyle Wealth Advisory team, have a wonderful weekend.

Andrew Pyle