100 days of chaos…but don’t write off the US yet

Looking ahead, the US still has some key strengths that help its companies stay competitive. These include faster productivity growth, more relaxed regulations across different industries, and much bigger investments in AI — all of which could help boost profits. Although Europe has performed better recently, it still makes sense to spread investments globally over the long run.

Is the US heading for a recession?

April saw significant volatility in both US and global equity markets, with some of the sharpest daily and weekly moves of the past two decades. The US’s major stock market briefly entered bear market territory, meaning a 20% fall from its recent peak in February.

Markets rebounded after reassurances from policymakers and a more constructive tone on trade. But, despite the recovery of the past couple of weeks, we expect market volatility to persist. The risks to global and US economic growth in 2025 remain. Recently announced tariffs are likely to weaken economic growth, leading to lower US and global GDP outlook for the year. Key risks include:

• Higher consumer prices, as businesses pass on tariff-related costs
• Lower real income and reduced household spending due to higher prices
• Changes in financial conditions, including shifts in interest rates and equity and bond pricing.
• Lower imports if there are shifts from imports to domestic manufacturing. 

Overall, we expect US economic growth this year to fall short of the economy's long-term potential growth rate of 2%. While we’re not predicting a recession as the most likely scenario, uncertainty around economic policy could dampen growth as business investment and consumer spending slows. The chart below illustrates our current thinking and shows how a modest drop in economic growth over the next few quarters could result in two consecutive quarters of negative GDP growth, meeting the technical definition of a recession.

Even if a recession occurs, we expect it to be short-lived and shallow. Corporate and household balance sheets are in better shape compared to past periods of prolonged economic downturns, such as the global financial crisis of 2008-9. Even though trade tariffs usually push prices up (causing inflation), the economic slowdown they cause would actually help bring inflation down. That means the Federal Reserve could feel more comfortable cutting interest rates. Lower rates would help the economy bounce back more quickly and could be good news for investments that do well when growth picks up, like stocks.

Given the risks to US economic growth, investors should be prepared for further stock market wobbles, but we expect a fairly quick rebound back to the previous market peak. Consequently, we believeinvestors shouldlook through the short-term noise and stay the course, focusing on the broader, more sustainable long-term growth trends.

US earnings season kicks off – our initial thoughts

The first-quarter corporate earnings season is underway in the US, against a backdrop of changing trade policy. Analysts have steadily lowered their earnings expectations for the US’s largest listed companies over the first three months of the year. Q1 2025 earnings are now forecast to grow at 8% year-on-year, down from the 11% predicted at the start of the year and the 18% expected at the end of 2024. With tariff announcements made in early April and final policy details still uncertain, first-quarter results are unlikely to capture the impact of recent trade measures. We are closely monitoring management commentary for insights into consumer and business health, corporate strategy around tariffs, and the potential implications for US economic growth and inflation. This and the next earnings season will be critical for gauging fast-moving trends.

Large US banks, as usual, were among the first to report. While less directly exposed to tariffs, they are vulnerable to secondary effects such as a slower economy affecting lending activity. Many reported strong Q1 earnings, although equity and debt capital market activity remained subdued. This could weigh on these businesses which are reliant on capital markets to fund their growth.

Americans are still spending

Banks and card payment companies are reporting that Americans are still spending money, and have strong household finances, good credit scores and few missed payments. But some of this recent spending may be due to people stocking up before prices go up because of the new tariffs. If people and businesses lose confidence in the economy, this could lead to job losses, higher unemployment, and reduced spending and borrowing.

Companies are still trying to soften the blow of trade tariffs by raising their prices and cutting costs. They’re doing this by improving their supply chains, moving production closer to home, and making their operations more efficient. However, a growing number of them are also warning that future sales and profits may be lower than expected. Capital expenditure, or capex, meaning how much companies plan to spend on things like new equipment or technology, is an important indicator of how confident businesses feel. This is especially important for the US technology companies that have been driving so much of recent stock market growth. Many of these firms have said they are sticking to their 2025 spending plans – a positive sign which has been welcomed by the markets. We will be watching closely to see if these business investments actually pay off.

Around a third of the largest listed companies in the US have reported so far. We will share another earnings update in the coming weeks as more results come through.

If you would like to discuss any of the topics covered in this month’s outlook, our door is always open. Contact us


Content correct as of publication on 1st May 2025