1. U.S. Tariff Policy Is Disrupting Global Markets
More details about changes to U.S. tariff policy are emerging, but significant uncertainty remains.
The number of S&P 500 companies mentioning “uncertainty” in their earnings calls more than doubled compared to the previous quarter. Higher tariffs could splinter international supply chains or push companies to postpone capital expenditures and other investments.
However, some firms are highlighting ways to soften the potential impact of tariffs. For example, 3M said it may adjust where and how its goods are produced.
The company could ship semifinished goods to the countries where they’re sold and fully finish them after arrival. Doing so would lower the items’ value and, in turn, reduce their tariff exposure.
2. Europe Proposes New Defence Stimulus
As concerns grow about U.S. reliability, the EU rolled out a framework for boosting defence spending, which could bolster the region’s defence industries.
The EU plan includes a 150-billion euro fund that member nations could tap for defence projects. The fund would direct most disbursements to companies in the EU, the European Economic Area, the European Free Trade Association and Ukraine.
EU countries could also deviate from the bloc’s fiscal rules and put an extra 1.5% of their gross domestic product into defence.
These new policies could generate more than 800 billion euros in additional defence spending.
3. Big Tech Doubles Down on AI in 2025
Some of the largest tech companies are accelerating their investments in artificial intelligence (AI) despite the recent debut of DeepSeek. The creation of this lower-cost AI model raised the question of whether firms would continue spending significant sums on infrastructure.
In February, though, Amazon announced plans to spend more than $100 billion on CapEx, up from $78 billion last year. Most of the money will go toward AI projects related to its cloud business.
Meta also said it would raise its CapEx budget beyond what was previously planned for this year. Instead of spending $60 billion to $65 billion, the new plan calls for an outlay of $64 billion to $72 billion.
Doing so will let the company add capacity faster, allowing it to progress on AI projects that could fuel growth, such as AI-generated advertisements.
4. U.S. Consumers Start to Show Mixed Signals
While consumer sentiment weakened over the first quarter, U.S. consumer spending increased at a slowing rate.
In its most recent earnings call, Visa described consumer spending as resilient and strong, with spending growing fastest among the most affluent households. However, the company said areas such as travel experienced slower growth.
Booking Holdings, the owner of Booking.com, Priceline and other brands, noted signs of a “bifurcated economy” in the U.S. Higher-rated, higher-end hotels tended to fare better than those with fewer stars.
Companies like Pepsico and Starbucks also pointed to signs of a tougher consumer environment. McDonald’s U.S. comparable sales shrank by 3.6% during the quarter.
5. Banks Are Benefiting from Tariff Turmoil
President Donald Trump’s tariff announcements appear to have generated a tailwind for banks during the first quarter. Their trading revenues surged as investors added and trimmed their holdings to adapt to market uncertainty.
A group of the largest Wall Street banks made almost $37 billion from trading, their best results in more than 10 years. And a group of Europe’s five largest banks earned 13 billion euros from trading, their best performance in at least a decade.
Over the long run, though, tariff uncertainty could present a risk if it scares investors into keeping their money on the sidelines.
Earnings Forecast: U.S. and EM Could Outpace Europe, Japan
Analysts expect S&P 500 earnings to expand by 4.77% in the second quarter. The full-year forecast calls for earnings growth of 8.97%, lower than previous estimates.
Growth might end up lower in other developed markets. Analysts predict -17.95% Japanese growth in the second quarter and an increase of 5.94% for 2025. European equities are expected to record 0.80% growth in the second quarter and a gain of 1.69% for the year.
Emerging markets could see 4.44% growth for the second quarter and 10.59% for 2025.