Strong first quarter for US companies
The Q1 2025 earnings season is nearing its end. Despite widespread anxiety over Donald Trump’s tariff policies, US companies have posted solid results that significantly exceeded analysts’ consensus expectations. The strength of first-quarter growth stands in contrast to the US GDP figures, which showed a contraction over the first three months of the year due to a rise in imports ahead of the anticipated tariff hikes. While this inventory build-up had a positive impact in Q1, corporate guidance has been more cautious, raising concerns about a widespread margin contraction starting in the second quarter. As a result, earnings revisions for 2025 are likely to remain clearly tilted to the downside.
Back to square one
Wall Street extended its rebound last week, dragging the vast majority of global equity markets along with it. The broad index of the New York Stock Exchange has now fully erased the losses triggered by Donald Trump’s early April announcement of reciprocal tariffs. This rebound seems fairly logical, though it occurred much faster than we had anticipated. Fears of a severe US recession have dissipated in recent weeks, largely due to the dramatic shift in tone from the US President, who reversed course on tariffs on April 9. Since then, he has appeared more measured in both rhetoric and decision-making, particularly toward America’s trade partners. Trade negotiations have begun, and there are whispers they could soon reach resolutions for several countries.
The peak of trade tensions now seems to be behind us, and so far, the US economy has weathered the storm. Granted, GDP contracted in the first quarter, but this decline is primarily technical, tied to stockpiling by companies ahead of expected tariff hikes. Despite the many uncertainties brought on by the new administration's policies, business sentiment indicators across both industry and services have held up.
Moreover, key metrics of the US labor market continue to demonstrate resilience. Job creation persisted in April, the unemployment rate held close to full employment at 4.2%, and wages continued their upward trend (+3.8% year-on-year). Under these conditions, and despite a sharp decline in consumer sentiment, we maintain our view that private consumption, and by extension the broader economy, are unlikely to falter. These figures have helped reassure financial markets. After reaching extreme levels of pessimism, investor sentiment is gradually improving. The current backdrop therefore supports a continued rebound in so-called “risky” financial assets, particularly equities, both in the US and globally.
This week’s figure: 0%
Swiss inflation once again came in below expectations in April. As of the end of the month, the Consumer Price Index is flat year-on-year, a level not seen since 2021. A policy rate cut by the SNB to 0% in June now appears inevitable. Furthermore, this persistent weakness in Swiss inflation could eventually lead to a return of negative interest rates.
Author
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Daniel Varela holds a degree in business administration with a specialisation in finance from the University of Geneva and began his career in 1989 as a fixed income manager. He joined Banque Piguet & Cie in 1999 as head of institutional asset management and with responsibility for bond analysis and management. In 2011, he became head of the investment strategy and Piguet Galland's investment department. In 2012, he joined Piguet Galland's Executive Committee as CIO.
