Between Soft Recession and AI on Steroids, Welcome to 2025
The American economy is in the gutter – this is no surprise, but as of yesterday, it’s confirmed. In fact, Trump even released a statement saying that it’s all Biden’s fault and that we need to be patient. BUT, ultimately, none of what was published yesterday is a surprise. It’s almost like a plan unfolding smoothly, allowing the Fed to finally lower interest rates and save the economy. In fact, when you see what happened yesterday, you can conclude two things: either the market is already anticipating a glorious return of the U.S., or some people were better informed than others about Microsoft and Meta’s numbers…
Let’s start from the beginning
Yesterday, Europe discovered something that seemed unthinkable or unimaginable: the economy of the Old Continent is growing. Yes, I know, it might sound like an episode from The Twilight Zone. And yet, yesterday Europe released its GDP, and while the ECONOMISTS WHO KNOW expected a soft growth of 0.2%, it came in at 0.4%. So, we went from “soft growth” to “growth, period.” It’s a small difference, but it’s enough to make investors change their mind. At least for the next 12 hours. No, because yesterday morning, I bet my hand that – even if you looked hard – you’d never find a “finance expert” who would say:
“Yeah, I’m buying the market this morning because I’m betting on European growth.”
Not even me. And especially not me. In fact, I still don’t believe it, and I wonder if the numbers released yesterday were picked out of a hat and no one actually calculated anything. When you see that TotalEnergies reported a 18% decline in profits for the first quarter – with profits at $4.2 billion – hurt by falling oil prices and margins, despite higher production. When you see that Stellantis reports a 14% decline in quarterly revenues and SUSPENDS its 2025 forecasts due to tariffs and a total lack of visibility, and when you see that Airbus is begging the U.S. to remove tariffs on planes, and when you see that unemployment is exploding in France, and that car manufacturers have been and will be massacred by Trump, it’s hard to believe that Europe has had a stellar three months and that the economy is growing. Unless the billions being handed out weekly to Ukraine are included in the growth calculation – unless it’s future arms sales forecasts that are boosting the economy.
Europe Believes, and Believes in Itself, It’s Incredible
Regardless, Europe finished up. Not a huge surge, but an increase that acknowledges that the region’s growth was “a bit” better than expected and a rise that respects the fact that some think “Europe is a safe haven for investors.” I don’t know who said that, but I read it this morning and thought the guy was very bold. No, because you have to dare… Saying that Europe is a “safe haven” when Trump has it in his sights economically and Putin has it in his sights altogether – if we believe the ramblings of the donkeys who make up the French government – it seems incredible to think that Europe could be the first place that comes to mind when you don’t know where to hide. Anyway, I’m not going to contradict the people who know and hold the great wisdom of the financial world, so yesterday, European markets went up because growth was better than expected all over Europe. The DAX rose 0.32%, France hit a half percent rise in full euphoria, and Switzerland jumped 0.42%.
If the SMI rose 0.42%, it wasn’t because of UBS, since Switzerland’s ONLY AND LARGEST BANK WITH THE BLESSING of the FINMA and the Federal Council, published a first-quarter report “much better than expected,” but in a still explosive context. Net profit was down 4% year-on-year, at $1.7 billion, but exceeded expectations thanks to an ultra-light tax rate – thanks, guys – revenues fell slightly, costs rose, stock buybacks continued, but clients brought in less cash, with $39 billion in net new money this year compared to $48 billion last year. The digestion of Credit Suisse is “going less badly than expected,” but the big unknown remains Swiss regulation, which could kill stock buyback ambitions.
In summary: UBS is performing DESPITE EVERYTHING, but remains stuck between its ambitions and the post-CS stress of a country that finds its largest bank a little too big for its mountains (sometimes).
And the American Economy Stalls, While Trump’s Plan Moves Forward
While we were delighting in Europe’s growth, the Americans started publishing THEIR economic numbers. The numbers that were “supposed to change everything” yesterday morning. I don’t know if you still remember. So we got THREE IMPORTANT NUMBERS:
ADP Employment numbers
GDP
PCE
I’ll warn you right away, the balance is not great, I suppose you’ve seen it, but what’s most interesting is what we can draw from it as a conclusion.
So, the ADP employment numbers were expected at 114,000. It came out at 62,000. Not only is this far below expectations, but it’s also in freefall compared to 147,000 last month. There’s nothing more to say, except that it’s a clear sign of slowdown on the employment front in the U.S. This could weigh even more on the dollar and the Fed’s patience. A number that’s not pleasant, just two days before the NFP.
The U.S. GDP contracted by 0.3% in the first quarter, whereas economists were expecting an increase. Why? A flood of imports to anticipate Trump’s tariffs. Result: record trade deficit, forecast failures, and markets tanking as if it were a surprise. Some are already shouting “moderate recession,” while others remind us that it’s Trump himself who messed things up. It’s the first time in three years that the number is negative. But for now, it’s still being explained as a temporary factor… Temporary, but Trump still let loose on social media, saying:
“This is Biden’s stock market, not mine. I only took over on January 20. Our country is going to explode (in a good way), but we need to get rid of the ‘dead weight’ Biden, it will take time, but THIS HAS NOTHING TO DO WITH TARIFFS, it’s just that he left us with bad numbers. But when the boom comes, it’ll be like nothing we’ve seen before. BE PATIENT!!!”
Well, that’s reassuring, but upon the announcement, markets still dipped, and we felt the shock for a few hours. On the other hand, the PCE showed that inflation is no longer rising. Well, it’s not falling either. But in this environment where everything seems to be falling apart because of tariffs, and where everyone thought they (the tariffs) would make inflation explode, you still have to admit that the surprise was quite large, and one can wonder if Trump’s plan is unfolding smoothly – provided it’s a deliberate plan and not just a huge stroke of luck.
Did I lose you? Well, yeah, inflation is no longer rising, employment is plummeting, and the economy is either in negative growth or in “light recession” – depending on how you look at it – so I don’t know about you, but based on this, if the employment numbers tomorrow are terrible, I’m going to start thinking that next week’s Fed meeting could be super interesting. There might not be a rate cut, but Powell’s tone could change drastically, and I think that yesterday, the market started to see an ideal scenario for justifying an earlier or larger rate cut than expected.
A Legendary End to the Session for Those Who Knew
You’ll agree, American numbers weren’t great. But they can – depending on how you look at them – leave room for something other than rigidity and “hawkishness” from Powell. The markets didn’t take it too well, and in the two hours following, the S&P dropped nearly 2% before reconsidering things and hovering around 5,500 for the rest of the session, slightly down, but not fundamentally depressed. And then, the mysterious magic of financial markets played out again… 25 minutes before closing – with no new information, no macro announcement, and no posts on X, Truth Social, Facebook, or LinkedIn, U.S. indices skyrocketed, recovering 1.5% in less than half an hour.
Incredible. No information, just a feeling and the desire to buy the market because the world’s end is not happening just yet… And then, right after the close, Meta and Microsoft released spectacular numbers, and the two heavyweights of the S&P surged 6% and 7% respectively in after-hours. This morning, U.S. futures are already up 1%. So, well, we’re not going to say that there are people who knew Meta and Microsoft’s numbers BEFORE everyone else, but let’s just say that this kind of sudden and unjustified rise has become a little (too) common these past months. So, one of two things: either someone has cracked the ChatGPT code and turned the beast into a competition monster who plays with a head start and in three weeks, will be able to give us the weather forecast for October 2029 with a 150% probability of being right, or some people are better informed than others, and the SEC has become a big joke that’s completely useless… Anyway, yesterday the markets finished slightly up without anyone really knowing why, and at 10:10 p.m., we understood WHY…
The Hit of the MAGNIFICENT TWO
Microsoft – The Quiet Muscle of Tech
Microsoft just posted a solid quarter like adamantium, with results far exceeding expectations. Revenue rose to $70 billion, net profit to $25.8 billion – that’s $3.46 per share versus $3.22 expected, and Azure, the company’s cloud jewel, soared 35%, well above the anticipated 31%. All segments are in the green: Office 365, Windows, cloud… even the PC division performed better than expected despite tariff threats, which led to stockpiling. Forecasts for the next quarter are also above consensus, with projected revenue of $73.7 billion, which reassures investors, especially after three disappointing quarters. As for expenses, Microsoft showed some restraint: $21.4 billion in capex, $1 billion less than expected, while announcing an increase in next year’s investments, but less aggressive than the 57% expected this year. Satya Nadella summed it up in one sentence: “Software is our best weapon against inflation.” Translation: while everyone else is freaking out over tariffs, Microsoft keeps churning along at a steady pace.
Meta – The Advertising Ogre Embraces the AI Bill
Meta, on the other hand, is also hitting hard and silencing doubts about its massive spending on artificial intelligence. Net income surged, with $6.43 per share versus $5.23 expected, $41.4 billion in ad revenue (above expectations), and the market responded with a 6% rise in after-hours. The message is clear: advertising is resilient, and Meta has the means to fund its colossal investment plan. They’re increasing their capex budget from $60–65 billion to $64–72 billion, far above last year’s $39 billion. While Google remains prudent with stable $75
