The good news is that the Magnificent-7 are still magnificent. Three of them (Alphabet, Meta, and Microsoft) beat earnings expectations for Q1. We've been arguing that while AI may or may not make money for the providers of Large Language Models, the result will be more demand for cloud computing. That should be good news for at least four of the Mag-7.
The bad news is that recent economic reports have boosted the probability of a recession in recent days, according to Polymarket.com (chart). Our subjective probability of a recession remains at 45%. Let's review the latest relevant economic indicators:
(1) Consumer confidence. On Tuesday, we learned that the Consumer Confidence Index (CCI) fell to a nearly five-year low in April, down 8 points to 86.0. It's the fifth straight monthly decline, the worst such stretch since 2008. The decline has been led by the CCI's expectations component. The present situation component is relatively upbeat. However, the ratio of the present to the expectations components soared in April as it did prior to past recessions (chart)
(2) Manufacturing. April's M-PMI edged down to 48.7 (chart). That's a second consecutive reading below 50.0. The production index was especially depressed at 44.0. The new orders and employment indexes were also below 50.0. The word "tariff" was mentioned 27 times in the report compiled by the Institute for Supply Management. Tariffs are putting upward pressure on the prices-paid index, which remained elevated at 69.8.
