Stock futures were lower after big tech names — Apple and Amazon — reported weaker-than-expected earnings. This has led many to raise alarm over the future of the U.S. economy. Global policy researcher Grace Fan, of GlobalData TS Lombard, recently discussed her analysis of the markets. She noted that even in the best-case scenario, things aren’t looking good. As investors await the April jobs report, which is expected to provide critical insight into economic health, the atmosphere remains cautious.
Apple’s stock fell by 2% after its Services division’s performance did not meet analysts’ expectations. The tech giant specifically Services revenue of $26.65 billion during its fiscal second quarter. This was below the expected $26.70 billion based on StreetAccount surveys. Additionally, per Apple’s management, trends were softening in the U.S. segment, both sequentially and year-over-year, due to macroeconomic concerns.
This was enough to send Amazon lower, with its shares down 2%. This plunge came on the heels of the company’s weak guidance for its second-quarter operating income, which was well below analysts’ expectations. Further, “tariffs and trade policies…” were specifically listed by Amazon as a cause in its blowout quarter.
Airbnb shares took a hit too, dropping over 4%. Even with more tech-sector losses on the horizon, the DJIA added 0.2% today. During this time, the S&P 500 skyrocketed by 0.6%. The S&P 500 is on track to advance 1.4% this week. At the same time, the Dow is headed for a 1.6% gain.
The weakening tech stocks were contagious. The Nasdaq 100 futures caught the spillover effect from the sentiment and plunged 0.5%. Pessimism among individual investors concerning the short-term prospects for stocks has rocketed. In our most recent Michigan sentiment survey, it’s soaring at 59.3%, an increase from 55.6% the prior week. This unprecedented surge in pessimism really stands out against the historical average of 31.0%.
Traders are especially looking forward to the April jobs report. They hope for the unemployment rate to hold firm at 4.2%, but they keep their eyes peeled for any signs of economic volatility that could turn market tides. Despite underwriting challenges, Fan noted that risk of recession continues to be the elephant in the room driving market forces.
“Recession risk is the key determinant of Trump seeking off-ramps: how high is his pain threshold? Probably lower than its main trade-war opponents.” – Grace Fan
Fan further elaborated on the complex interplay of trade policies and market conditions, stating, “In the best case, such interim trade deals would accompany a budget and tariff settlement in Congress that would head off legal challenges, especially to the ‘baseline’ universal 10% tariff.” She cautioned that “even if all of that were achieved (a long shot), business uncertainty would be reduced but far from eliminated.”
Investors are eager to see how all of this plays out. Specifically, they’re looking to understand how companies will address these concerns in their future earnings calls. The upcoming April jobs report will provide more insight into employment trends. It should impact the Federal Reserve’s policy-making decisions going forward.