I had originally planned to start this week’s Perspective by making some kind of clever comment about last week’s dismal Gross Domestic Product (GDP) data and riffing from there. But then fate intervened and presented something that I found a little bit more on-point with what’s currently driving the market narrative: It has to do with one of the most difficult Monday mornings I’ve had in a long time, so bear with me for a few paragraphs while I tell the story of My Messy Monday (and I promise, there is a point...).

My Mondays usually start pretty early. That’s because I like to start collecting my thoughts for this Perspective long before equity markets open for the week, and it usually takes a few hours to get the journalistic juices flowing. But this morning, I logged on to find that one of the systems I rely on to research and write the Perspective was not allowing me in. (The identity of that particular system will remain hidden to protect the innocent, but market professionals will probably be able to venture a pretty good guess.) After half a dozen login attempts, numerous calls with tech support (both internal and external), an escalation or two, and 90 minutes or so of unnecessary commuting, I was finally up and running around lunchtime.

That put me about six hours behind schedule — a headache for me, and if I’m being totally up front and honest, a possible hit to the completeness and quality of this week’s commentary for you, the reader. But here’s the interesting part: The information I glean from <NAME REDACTED> is generally available elsewhere, but I’ve grown so accustomed to the quality and efficiency of using that particular system that I’ve built up my entire Monday morning process around it. When it was suddenly unavailable, it threw me for a loop even though I theoretically could’ve gone elsewhere for much of it.

By now, you might see where I’m going with this: My interrupted Monday provides a near-perfect analogy for the lingering disruption caused by the extensive tariff regime announced by the president just over a month ago even though the rhetoric has since been toned down significantly. See, the entire U.S. economy is built on a set of assumptions about what’s most efficient, not just what’s possible. Think of it this way: It’s not as if we here in the U.S. are incapable of building fuel-efficient automobiles, we just decided decades ago to allow someone else who also happened to be really good at it (in this case, Japan) to take the lead while we focused on other, more profitable models like SUVs and pickup trucks. The same goes for Vietnamese textiles, Chinese manufactured goods, or just about anything else that we consume locally but no longer produce at scale here at home. 

Incidentally, what’s true for the goose is also true for the gander: For example, it’s not like Chinese engineers aren’t fully capable of producing locally-designed AI-enabled semiconductors, it’s just that Nvidia is currently much better at it, so by importing those chips and focusing their collective attention elsewhere, the whole value chain operates more efficiently.

Anyone trained in economics will recognize this concept as “comparative advantage,” and traditional economic theory holds that the entire global economy can be made more efficient and prosperous by relying on it. But there is also a downside: Once a free and open economy gets a taste of it, specialization can become something of an addictive drug. Before long, supply chains become complex and intertwined, dependencies approach unsustainable levels and entire processes are created that rely upon it without much thought given to what might happen if one of the links in the chain is suddenly broken — much the same way my Monday morning process in bringing this Perspective to you was disrupted because I have built a process that relies so extensively on a small handful of vendors.

So regardless of whether the deliberate upending of global trade by officials in the Trump administration ultimately proves to be right or wrong, when something comes along and threatens to disrupt even one of these semi-fragile relationships, it’s only natural for shocks to reverberate throughout the entire system while long-held assumptions are questioned and countless economic processes, each honed by decades of competition and refined by efficiency-seeking agents, are re-tooled (or at least re-imagined). And that uncertainty, friends, is why market volatility hasn’t returned all the way back to pre-“Liberation Day” levels even though equity markets very nearly have. It also helps explain why a number of market and economy watchers (myself included) aren’t yet ready to declare an end to tariff-related uncertainty even if the trade war ends tomorrow.

At a minimum, when crucial assumptions about how the world works are suddenly challenged, it’s only natural to see significant disruption show up across the entire system in weird ways — which, incidentally, brings us full-circle to that dismal first-quarter GDP release that I mentioned at the outset. As expected, the Bureau of Economic Analysis (BEA) announced on Wednesday that U.S. economic growth turned negative for the first time since 1Q2022.¹ It might be tempting to shout from the rooftops that “the recession has arrived!,” but even a casual glance at the numbers argues for a different interpretation: Last quarter’s data were badly skewed by a huge spike in imports as businesses and consumers rushed to buy stuff before tariffs made almost everything imported into the U.S. more expensive. Given how the math behind GDP numbers works — imports are a direct deduction from domestic economic activity — it was almost inevitable that 1Q’s GDP figure would have a minus sign in front of it. So although it may well turn out that Wednesday’s release did indeed mark the arrival of the most-predicted recession in history, there’s an equally plausible chance that it won’t.

Still, such distortions weren’t limited just to the GDP account. Also on Wednesday, the BEA released its income and outlays report, and² one of the more eye-catching numbers in the whole release was an annualized, seasonally adjusted $56 billion increase in spending for automobiles and parts as consumers rushed to buy cars. That was a huge increase that represented nearly 3 times the increase of next-biggest category (and also happened to square nicely with the observation in Tuesday’s wholesale inventory report from the U.S. Census Bureau showing a massive decline in motor vehicle inventories).³ Taken together, these data make a pretty strong case that people spent the last weeks of the first quarter redirecting cash that they might have otherwise been inclined to stuff inside a mattress to buy cars before pending tariffs pushed sticker prices out of reach.

And why, you’re probably asking, might consumers be otherwise inclined to mattress-stuff? It might be that they’re simply following the lead of legendary investor Warren Buffett, who allowed his company’s cash pile to grow to a record of nearly $350 billion last quarter amid a lack of investable ideas, even as he announced plans to step down as CEO at the spry young age of 94.⁴ Regardless of whether that had any impact, last week’s consumer confidence data from The Conference Board showed declines that were evenly-spaced among consumers across all political affiliations, ages, and income cohorts.⁵ Maybe most concerning of all, consumers are increasingly worried about jobs: The gap between consumers who view jobs as “plentiful” versus “hard-to-get” widened in a bearish direction last week while number of consumers who expect fewer jobs to be available in the future grew to 32% — the highest reading since the middle of The Great Recession in 2009.

For now, though, any weakening of the job market remains mostly speculative. While last week’s ADP payrolls figure was disappointing and the number of job openings recorded by the Bureau of Labor Statistics’ Job Openings and Labor Turnover Survey (JOLTS) report was significantly lower than expected, the data that matters — Friday’s non-farm payrolls figure — was a better-than expected 177,000. Unless and until that figure rolls over, it will be hard to argue that the economy is softening significantly, no matter what the surveys say.^6,7,8

What to watch this week

Unless you happen to be a Fed-watcher or a fundamental analyst, it’s a blissfully light week on the economic front. Among this week’s regularly-scheduled releases, only Monday’s Institute for Supply Management/Purchasing Manager’s Index data for the services sector and Tuesday’s updated trade balance appear likely to cause much of a splash. Of course, listen closely for anything that might change the trajectory of the tariff debate as well.

But the real main event will be Wednesday’s interest rate decision by the Federal Reserve (the Fed), followed by a very active speaking calendar by Fed officials that continues through Friday. As always, Fed officials strictly avoid saying anything publicly until the Federal Open Market Committee announces its decision on Wednesday afternoon, but the sheer volume of scheduled speeches on the docket toward the end of this week (no fewer than eight on Friday alone by Econoday’s count⁹) makes me suspect that more than a few of these experts are just itching to give their views to the market.

As for the decision itself, anything other than a “hold” would be a big surprise. Fed Fund futures are currently pricing in less than a 2% chance of a cut on Wednesday, with the most likely outcome for June also being a big nothing-burger. Things get a little more interesting in the back half of the year though, with as many as three cuts now priced in between June and December. Expect the White House to continue to pressure Fed Chairman Jerome Powell until one of those cuts actually comes through.

In the meantime, we’ve reached the point in every quarterly earnings season where the number of companies reporting vastly outpaces our ability to catalog them here, with around 1,500 companies expected to release results this week. A few that might turn out to be noteworthy include Ford Motor Co. on Monday (tune in to hear how the company might be adjusting its North American operations to cope with policy uncertainty), or Disney (Wednesday) for a read on travel demand (and therefore discretionary consumer spending). Also of interest might be the gang of electric utility operators expected this week, which might provide an interesting way to triangulate AI trends by illuminating exactly how much growth in power demand utility operators expect to face in the near term. And finally — mostly because it’s kind of fun to talk about — it might be worthwhile to listen in when two of the biggest boat-builders in the U.S. (Mastercraft and Malibu Boats) provide last quarter’s numbers and any forward-looking comments they care to provide. Readers might remember a few quarters ago when both of those firms were singled out in these pages when leisure-craft demand appeared to weaken significantly. If you view a new bass boat as more of a luxury spend than a necessity, any thoughts these companies might have about the overall environment might be a fun and interesting way to guess at what the consumers’ mindset really is that goes beyond what the survey-takers are reporting.

This material is neither an endorsement of any security, index or sector nor a solicitation to offer investment advice or sell products or services.