3 Things You Need to Know This Week | Consumer Confidence, Q1 2025 GDP, China PMIs (May 26, 2025)

Transcript

Austin Standiford

Hello and welcome to the 3 Things That You Need to Know this Week. Our regular series designed to help you sift through the noise across financial media and understand what really matters for markets. And now, here are the three things that you need to know this week.

First up, EU and US consumer confidence.

On Tuesday, the eurozone reports final May consumer confidence and inflation expectations data, followed by the US on Friday. As we've seen, consumer confidence has taken a big hit in recent months while inflation expectations are climbing. Inflation expectations in the eurozone are at the highest level since late 2022, while US inflation expectations are well above their 2022 levels. Despite popular belief, few realize that these measures aren't great at predicting what's coming next for the economy. They're more like snapshots of how people are feeling right now. For context, US inflation expectations actually peaked at the same time as inflation in In 2022, not before it. Now, the recent dip in consumer sentiment that doesn't come as a shock to us. Confidence trends track along with stocks, economic data and even the overall tone of financial news coverage. With the stock market correction, tariff uncertainty and renewed recession worries, falling consumer sentiment makes sense. Here's the silver lining though, weak sentiment often sets a lower bar for reality to beat. If things turn out to be even a little better than people fear, it could give markets the push they need to keep the bull market going strong.

Next, Q1 2025 GDP.

This week, investors will get two big GDP updates. On Thursday, the US will release its second estimate for Q1 GDP, followed by Canada's first Q1 GDP estimate that comes out on Friday. The first estimate of US Q1 GDP delivered a surprise contraction, showing some clear signs of tariff effects, but it could be revised upwards this week. Canada's latest GDP data is expected to show mild growth, but there's growing concerns over whether tariffs could push their economy into contraction. Here's why tariffs are a big deal for Canada: Exports make up about one third of its GDP, and over 75% of those go to the US. With recent data signaling a slight slowdown in their economy, it's no surprise that investors are worried. But Canada's strong relationship with the US, especially in the energy sector, could be a safety net and political pressure to limit the impact of US Canada tariffs also seems to be mounting. We've also seen some compromises take shape, with the Trump administration initially implementing a lower tariff rate on Canadian energy products, exempting USMCA compliant goods and promising carve outs for the auto industry. Regardless of what this week's GDP report delivers, it's critical for investors to remember that stocks, they're forward looking, while GDP is backwards looking. Stocks don't wait for economic data. They preprice all widely known information and move in advance of the economy. This means future economic growth is what's relevant to stocks, not what occurred in preceding quarters. And while markets and investors continue to monitor tariffs for their potential impact on economic growth, we think their actual impact is still likely to be less than widely feared.

Finally, economic signals from China.

On Sunday, China is set to release its May purchasing managers indexes or PMIs. While April's composite PMI showed economic growth overall, the data revealed a dip driven largely by a contraction in manufacturing, with services holding up better. This really isn't too surprising, with the US-China tariff fight ramping up last month. That said, both the official services PMI and the Caixin private survey showed more than half of respondents reported growth, hinting that services, a bigger piece of China's GDP, remains in decent shape. There's still concern over tariffs and their impact on China's economy, but a few factors offer perspective. Effective exports to the US make up just 15% of China's total exports, and many consumer electronics have been excluded from tariffs, softening that blow. Plus, a 90-day pause on higher tariffs announced earlier in May has given markets a bit of breathing room. While much depends on the outcome of trade talks. Businesses and countries continue to adapt and legal challenges to tariffs in the US and other countries layer on uncertainty. For now, a less severe trade impact than many fear seems likely, which could be good news for stocks.

And that's it for this episode of the 3 Things You Need to Know this Week.

For more of our thoughts on markets, check out This Week in Review, released every Friday. You can also visit FisherInvestments.com. Don't forget to "like" and "subscribe!'