Muddied GDP report leaves buyers with little readability about financial danger

By Lewis Krauskopf and Saqib Iqbal Ahmed

NEW YORK (Reuters) -Traders have been left with little readability on Wednesday concerning the well being of the U.S. economic system regardless of a recent report on gross home product, with the fallout from President Donald Trump’s sweeping tariffs muddying development alerts.

On its face, the first-quarter information exhibiting the primary U.S. financial contraction since 2022 was alarming and introduced fast stress on U.S. shares.

However some economists had braced for a fair deeper contraction and have been inspired by the info. The weak spot stemmed from a surge in imports as companies sought to keep away from increased prices from the brand new tariffs, a phenomenon that many analysts stated was poised to reverse in coming months.

Traders confronted an identical place as that they had earlier than the extremely anticipated report, weak to twists and turns in Trump’s very a lot unresolved commerce battle that stood to maintain markets on edge and the potential for a recession nonetheless on the desk.

“There’s simply large distortion and volatility within the financial information proper now due to the pull-through of tariffs,” stated Matthew Miskin, co-chief funding strategist at John Hancock Funding Administration. The GDP report “would not assist shake off this financial contraction worry that has been gripping markets.”

U.S. gross home product fell at a 0.3% annualized fee final quarter. Imports jumped at a 41.3% fee, leading to a big commerce hole that chopped off a file 4.83 proportion factors from GDP.

“It is extra frustration for the long run investor since you’re not getting a very good learn on what the precise economic system is doing,” Mark Hackett, chief market strategist at Nationwide. “We have to know what’s taking place within the economic system … and stories like this do not give us quite a lot of helpful information on that.”

Larry Werther, chief U.S. economist of Daiwa Capital Markets America, stated he was inspired that client spending, which accounts for greater than two-thirds of the economic system, grew at a 1.8% fee, indicating “the home economic system was nonetheless on observe” within the first quarter.

Recession was not Werther’s base assumption “however odds of it within the subsequent 12 months have elevated considerably” from the beginning of the 12 months, he stated.

In the meantime, the persistent uncertainty itself poses a danger to markets.

“This era the place tariffs try to be negotiated and acknowledged by the market makes issues extraordinarily troublesome to mannequin, predict, and so on,” stated Peter Andersen, founding father of Andersen Capital Administration in Boston.