Investors spook easily these days. The stock market survived another major scare Wednesday and has since emerged with renewed strength thanks to Microsoft and Meta earnings. But with investors hung up on the economy and tariffs, there could be more frights around the corner.

The S&P 500 has gained for seven consecutive days, rising 8% over that time -- its biggest seven-day jump since November 2020, according to Dow Jones Market Data.

It seemed as though weak economic data were going to snap the index's streak Wednesday. The U.S. economy unexpectedly shrank in the first quarter. Private-sector jobs numbers also disappointed the market and the S&P 500 fell around 2% to start the day.

But the GDP contraction was mostly driven by a surge in imports, as companies tried to get ahead of tariffs. Consumer spending also held up well, rising 1.8%. When the Federal Reserve's preferred inflation metric, core PCE, came in flat for March -- the comeback was on for stocks.

The rally took another leg higher early Thursday following strong earnings after the bell from two of the so-called Magnificent Seven megacap companies -- Microsoft and Meta. The Big Tech giants both doubled down on hefty capex spending, reigniting confidence in the artificial-intelligence growth story.

Once upon a time the Mag 7 could be relied on to consistently drive stocks higher. While two other members of the illustrious group -- Apple and Amazon -- may well keep the tech momentum going with earnings after the close, Wednesday's volatility shows investors are really looking elsewhere for direction.

The market wants to see the U.S. reaching trade deals or progress in talks with China -- state media signaled Thursday that Beijing may be open to negotiating. It doesn't want to see signs that President Donald Trump's tariffs regime is hurting the economy.

A softening economy has so far been reflected in surveys, sentiment, and confidence indicators, rather than in hard data. Friday's jobs report could change that. If it shows a hiring slowdown, then on Wednesday's evidence, that may be a horror show for markets.

-- Brian Swint

***

Microsoft Beats Forecasts as Cloud Revenue Gains Accelerate

Microsoft beat forecasts on accelerating growth in its Azure cloud business, and a double-digit jump in overall cloud revenue. The results may dispel concerns about demand for cloud services given the turmoil and uncertainty over trade policy. The software company said its spending plans for artificial intelligence are unchanged.

   -- Overall cloud revenue in the quarter rose 20% from a year ago to $42.4 
      billion, and the Azure public-cloud business revenue rose 33%, up from 
      the prior quarter's 31% growth. Microsoft's third-quarter adjusted 
      earnings were $3.46 a share on revenue of $70.1 billion. 
 
   -- What's more, CFO Amy Hood said it expects fourth-quarter Azure revenue 
      growth to be about 34%, signaling further acceleration. Its productivity 
      and business-processes unit, including Microsoft 365 products, reported a 
      10% gain in revenue to $29.9 billion, and revenue from personal computing 
      rose 6% to $13.4 billion. 
 
   -- Microsoft's Hood said capital expenditures in the quarter were $16.7 
      billion, slightly higher than Wall Street estimates, adding that even 
      with the ongoing investments in AI, Microsoft continues to expect 
      full-year operating margins to be up slightly from the prior year. 
 
   -- Analysts were paying close attention to what Microsoft said about data 
      center leases after reports it has adjusted some. CEO Satya Nadella, 
      asked about this, said "The reality is we've always been making 
      adjustments." The company is watching demand curves, monitoring power 
      needs, and considering locations. 

What's Next: Hood said on a call that through April demand signals across Microsoft's commercial business and LinkedIn, gaming, and search have been consistent, and Microsoft's outlook assumes those trends continue in the fourth quarter. Results may be affected if the environment changes, she said.

-- Angela Palumbo and Liz Moyer

***

Apple Faces Potential Criminal Contempt Charge in U.S. Antitrust Case

Apple was sternly rebuked by a U.S. District Judge late Wednesday. It's the latest twist in a long-running legal saga that stems from a 2021 trial in which Epic Games sued the iPhone maker on antitrust grounds.

   -- After the trial, Apple was required to make changes to the App Store to 
      allow rivals to take payments. The case worked its way though appeals, 
      and the injunction against Apple was finally in force in January 2024. 
 
   -- In the Wednesday ruling, Judge Yvonne Gonzalez Rogers noted that Apple 
      continued to take a 27% commission on the alternative payments, versus 
      its usual 30%, while also taking steps to discourage use of the 
      alternative systems. She has referred the case to the U.S. Attorney for 
      the Northern District of California for possible criminal contempt 
      charges. 
 
   -- "Apple's response to the Injunction strains credulity," Rogers wrote. 
      "Apple, despite knowing its obligations thereunder, thwarted the 
      Injunction's goals, and continued its anticompetitive conduct solely to 
      maintain its revenue stream." 
 
   -- "We strongly disagree with the decision," an Apple spokesperson told 
      Barron's. "We will comply with the court's order and we will appeal." 

What's Next: Evercore analyst Amit Daryanani said the contempt charge could put about $6 billion worth of U.S. App Store revenue at risk, but added that "the actual impact will be lower given many developers will continue to prefer Apple's system." The company is set to report its second-quarter earnings after Thursday's closing bell.

-- Adam Levine and George Glover

***

Meta Platforms Tops Expectations, Projects Higher Capex Spending

Meta Platforms roundly beat first-quarter earnings expectations and projected current-quarter revenue that was slightly above projections, which could ease concerns about tariffs hitting digital advertising. Meta's 10% ad price growth from a year ago more than doubled expectations. It also raised its capital spending outlook.

   -- Earnings rose sharply to $6.43 a share, and revenue rose 16% from last 
      year, to $42.3 billion. Two of Meta's main revenue drivers, users and ad 
      views, came in as expected. Family daily active people rose 6% from a 
      year ago, to 3.43 billion. 
 
   -- Meta boosted its annual capital expenditures range to $64 billion to $72 
      billion. Subtracting the $14 billion it spent in the first quarter, that 
      leaves up to $58 billion in additional capex spending for the remaining 
      nine months of the year. 
 
   -- CEO Mark Zuckerberg told analysts that spending should pay off in 
      improved advertising, more engaging experiences, business messaging, Meta 
      AI, and in AI devices. He also said the industry's progress and the 
      opportunities ahead of Meta are "staggering." 
 
   -- But regulatory issues loom. In the European Union, where it was fined for 
      violating the Digital Markets Act for its no-ad subscriptions, Meta might 
      need to make modifications that could result in a materially worse user 
      experience and affect its business and revenue in the third quarter, said 
      CFO Susan Li. 

What's Next: Meta said current-quarter revenue would increase between 8% and 16% from a year ago, to $44 billion at the midpoint. Meta slightly lowered its full-year expenses projection by $1 billion, a notable feat given that its head count is up by 4% since the end of 2024.

-- Adam Levine and Janet H. Cho

***

Economy Contracts as Businesses Rush Imports Ahead of Tariffs

The White House's chaotic approach to trade policy and cutting costs from the federal government, plus an increasingly nervous consumer, pushed the economy into a contraction for the first three months of 2025. President Donald Trump, who was at the helm for nearly 80% of that period, blames his predecessor.

   -- Gross domestic product dropped at an annual rate of 0.3%, adjusted for 
      inflation, largely because of a surge in imports as businesses rushed 
      purchasing ahead of tariffs. That led to a roughly 5% drag on real GDP 
      and the first contraction since 2022. Government spending also fell. 
 
   -- Businesses contributing to the import surge used those goods to build 
      inventories. The first quarter change in inventories was $140.1 billion, 
      compared with $8.9 billion in the fourth quarter. Companies are stocking 
      up on medical supplies, consumer goods, and computers, before tariff 
      increases, the government said. 
 
   -- Consumer spending grew in March as inflation cooled, the Bureau of 
      Economic Analysis said. The push came largely from households buying 
      vehicles to get ahead of potential price increases caused by tariffs. 
      Spending on autos jumped 57% in March, and consumer spending overall 
      increased by 0.7%. 
 
   -- Trump called the collapse in economic growth in the quarter the Biden 
      "overhang." But GDP rose in 15 of the 16 quarters Biden was in office, 
      including the fourth quarter 2024. In a social media post, Trump said 
      tariffs will start kicking in and companies will move to the U.S., 
      creating conditions for a boom. 

What's Next: Inflation rose by the smallest amount since September. The personal consumption expenditures index, the Federal Reserve's preferred inflation measure, was flat in March from a month before. But analysts warn there's pain ahead as price hikes and other tariff effects emerge.

-- Nicole Goodkind, Megan Leonhardt, and Liz Moyer

***

How Companies Are Navigating Tariff Uncertainty

The economic uncertainty created by President Donald Trump's tariffs has hampered companies' ability to make decisions about buying, hiring, and dealmaking. It has also dominated S&P 100 companies' first-quarter earnings held so far, with most executives anticipating a negative economic impact.

   -- Mentions of the word "tariffs" spiked 132% in first-quarter earnings, 
      compared with the prior quarter, while mentions of "uncertainty" jumped 
      20%, according to Barron's analysis of earnings transcripts. "Everyone 
      would like less uncertainty and more clarity on forward policy," Goldman 
      Sachs' CEO David Solomon said. 
 
   -- PepsiCo lowered full-year earnings guidance, citing more volatility 
      ahead. Others, including several major airlines, did away with guidance 
      altogether, while some big pharmaceutical makers haven't factored the 
      effects of tariffs into their guidance. General Motors withdrew its 2025 
      profit guidance, saying the prior forecast "can't be relied upon." 
 
   -- Caterpillar expects tariffs to increase costs, reduce operating-profit 
      margins, and slightly lower 2025 sales. Airbus confirmed its 2025 
      aircraft delivery and financial targets, but CEO Guillaume Faury said it 
      is too early to quantify the impact from tariffs. GE Healthcare 
      Technologies expects tariff costs of about $500 million this year. 
 
   -- Logistics and shipping giant United Parcel Service mentioned 
      "uncertainty" 22 times on its earnings call. CEO Carol Tomé told 
      analysts and investors that the only thing they are certain of is that 
      they don't know which, if any, of their scenarios will play out. 

What's Next: Companies are trying to soften the blow by reshuffling supply chains, negotiating with vendors, sourcing products domestically, and trimming costs. But if all else fails, they may have to raise prices. Colgate-Palmolive CEO Noel Wallace said the pricing environment will continue to be challenging.

-- Sabrina Escobar and Janet H. Cho

***

President Donald Trump's first 100 days in office have been a whirlwind of executive activity -- as he has set in motion the firings of tens of thousands of federal workers, all but ended U.S. foreign aid and sent global markets reeling with steep on-again, off-again tariffs.

But at least one of the president's plans to leave a lasting mark on the American economy and government will require the support of a bitterly and evenly divided Congress.

MarketWatch dug into what's in store for the administration's next 100 days, including Congress' coming battle over tax policy.

For more on this, read here.

-- Chris Matthews

***

-- Newsletter edited by Liz Moyer, Patrick O'Donnell, Rupert Steiner

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

May 01, 2025 06:42 ET (10:42 GMT)

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