U.S. Economy Contracts, but Stock Market Climbs
Stock markets are up but maybe not for much longer as a recent report shows that the U.S. economy has contracted.
Quick overview
- The U.S. economy is showing signs of contraction, with a reported GDP decline of 0.3% in the first quarter of 2025.
- Despite economic concerns, the stock market has seen gains, with the Dow Jones, S&P 500, and Nasdaq Composite all increasing at the start of May trading.
- Upcoming reports on nonfarm payrolls and quarterly earnings from major companies like Apple and Amazon could influence market trends.
- Investors should remain vigilant regarding tariffs, as potential changes could impact the economic landscape.
The United States economy may be a bit closer to recession this week, but that has not stopped the stock market from gaining on the first days of May trading.
The Dow Jones 0.53% on Thursday morning as trading began, and the S&P 500 gained 1.04%. The Nasdaq Composite likewise climbed, with an increase of 1.51%, even though the recent Commerce Department’s report showed that the economy contracted through the first three months of the year.
Imports were way up in the early part of 2025, mostly due to President Donald Trump’s tariffs. An increase of 41.3% in imports caused part of the economic contraction, and the U.S.’s GDP (gross domestic product) fell by 0.3% in that same period. This may seem like a very negative trend to start off the year with, but the expectation is that the trend will reverse very soon.
This is why the stock market is not plummeting right now, even though it is lower than it was at the beginning of the year. In fact, the S&P 500 has lost value for the last three months in the row.
More to Come This Week
There are a number of vital reports coming still for the week, including the nonfarm payrolls and initial jobless claims reports. Apple (AAPL), McDonalds (MCD), and Amazon (AMZN) are all reporting today on their quarterly earnings, which could cause a shift in the stock markets.
These major economic reports are worth keeping an eye on, especially as there is concern that a recession may start in the U.S. economy soon. Both Microsoft (MSFT) and Meta Platforms (META) reported better than expected earnings for the quarter, demonstrating that tech stocks can be excellent investments even in these uncertain times.
Investors need to watch out for further developments with tariffs, as Trump could unpause the tariffs he ordered, and other countries could institute retaliatory tariffs against the United States. With new and recent tariffs paused for the moment, though, investors can focus on other economic factors that may affect the stock market.
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