S&P 500 Dives as 1Q’25 U.S. GDP Contracts Thanks to Trump’s Tariffs

Also, 10-year T-note, copper, crude oil and euro futures

1. S&P 500 E-mini futures (/ES): -2.24% 
2. 10-year T-note futures (/ZN): +0.1% 
3. Copper futures (/HG): -6.5% 
4. Crude oil futures (/CL): -1.75% 
5. Euro futures (/6E): -0.18% 

The growth sun has started to set for the American economy, with stagflation starting to cast a long shadow. 1Q’25 U.S. gross domestic product (GDP) contracted by 0.3% in annualized real terms, while inflation (GDP price index) increased by 3.7%. And that’s before the tariffs really started to bite. 

The GDP dataset show a clear impact from tariffs: This was the largest negative contribution from net exports in recorded data (since 1947). Further to this point, companies pulled forward production ahead of the tariffs, with private inventory growth surging to its highest level since 2021. “Final sales of domestic product” (GDP less inventory), was down 2.5% annualized. 

Some will point to the pullback in government spending as evidence of DOGE’s success in helping to trim the federal budget; instead, it was the sharpest drop in defense spending since the start of 2022 that drove the decline. That’s not a silver lining, but perhaps this is: “final sales to private domestic producers” (GDP less inventory, net-trade and government spending) grew by 3% annualized.  

One must conclude that the underlying U.S. economy remained resilient in 1Q’25, and would be performing much better were it not for the tariff-induced chaos coming out of Washington. How long the private sector remains resilient is another story. But with President Donald Trump quickly blaming his predecessor for the weak data, the deterioration in U.S. economic data thanks to the tariffs may still have some room to run. 

The downbeat GDP report put the hurt on sentiment as April trading looks to wrap up, sending S&P 500 futures (/ESM5) lower by over 2% in early trading. Labor market indicators are also stressing the market, with signs now pointing toward a recession in the U.S. economy. First Solar (FSLR) fell 10% this morning after the company warned tariffs would hurt the its profits. Snap (SNAP) fell over 16% after the company withheld guidance in its earnings report. The server maker Super Micro Computer (SMCI) dropped by over 16% after missing estimates. That dragged other semiconductor stocks lower, with Nvidia (NVDA) down 4% this morning. Meta Platforms (META) and Microsoft (MSFT) are set to report earnings after the close today.  

The rally in bonds moderated as traders digested the latest economic data. 10-year T-note futures (/ZNM5) were up 0.05% this morning in early trading, while the underlying yield traded around 4.185%, near the lowest levels since April 8. Earlier this week, the U.S. Treasury said it would increase its borrowing estimate for the current quarter because of a smaller cash balance at the start of the year. Meanwhile, lawmakers continue to debate the debt ceiling, which will likely need to be raised. Some analysts believe the $850 billion cash projection for the end of June is unrealistic. Friday’s jobs report is in focus for bond traders now.  

Copper prices responded sharply to this morning’s data, with futures (/HGN5) dropping over 5% in early trading. The metal is now down 9% from the start of the month despite a significant recovery from the April lows when it traded near the 4 handle. Tariffs and the now disappointing economic data have put a lot of pain on the metal. A modest rebound in the dollar today isn’t helping.  

Crude oil futures (/CLN5) are looking at the worst monthly performance since November 2021 following today’s 1.5% drop that accelerated following the GDP report. Traders fear tariffs and a slowing economy in addition to more supply from OPEC+ members will shift the market balance to an oversupply as soon as this summer. The backwardation in the futures structure has weakened on the longer side of the curve, reflecting the oversupply worries. British Petroleum (BP) reported a 48% drop in net profit yesterday, sending the stock 1% lower. The company announced plans to reduce spending and share buybacks over the next couple of years. It’s not what you want to see from a major oil producer and signals a weak outlook for the oil and fuel complex.  

Euro futures (/6EM5) were slightly lower this morning after inflation readings from major European economies showed price pressures may have increased recently. German Harmonized Index of Consumer Prices (HICP) came in above estimates for April, while France’s Consumer Price Index (CPI) rose 0.8% in April. While those readings were above estimates, they were lower than the previous month, which may support the case for rate cuts from the European Central Bank (ECB). Meanwhile, ECB members have started to sound the alarm on growth as the U.S. trade war takes impact in the global economy.  

Christopher Vecchio, CFA, tastylive’s head of futures and forex, has been trading for nearly 20 years. He has consulted with multinational firms on FX hedging and lectured at Duke Law School on FX derivatives. Vecchio searches for high-convexity opportunities at the crossroads of macroeconomics and global politics. He hosts Futures Power Hour Monday-Friday and Let Me Explain on Tuesdays, and co-hosts Overtime, Monday-Thursday. @cvecchiofx
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