It’s results season in the US, with all eyes on some of the world’s largest companies. Milford Portfolio Manager and Head of Sustainable Investment, Frances Sweetman, talks to Ryan Bridge about why the US economy is a bellwether for the global economy – and what we should be looking out for.
Watch.
Listen.
Click here to download the MP3 file or listen to the podcast on your favourite platform:
Read.
Bridge talks Business: 6 May 2025
Episode Transcript
Ryan Bridge
Kia Ora and welcome to Episode 31 of Bridge talks Business with Milford. This week we get to hear how American companies are performing. Why do we care about Apple, Nvidia, and Walmart, I hear you asking? Well, the health of the world’s largest economy gives us an insight into the health of everybody else’s. Bit like the Amazon rainforest for climate change. First up, here’s your top five business bits.
1. Shares have regained most of their Liberation Day losses. Talk of deals over escalation is music to the ears of investors. But given negotiations for trade take time, the risk might now be that optimistic investors are left wanting when it comes to concrete evidence of deals done.
2. The US economic data out in the last week’s been pretty strong. Quarter one GDP solid, labour market reports showed good job growth. The question though, is this a resilient economy or is this a pull forward of demand pre-Liberation Day?
3. Uncertainty and pessimism with the themes coming out of the business and consumer surveys. These are feelings though, we await hard data.
4. Little reaction from shares, bonds and currencies to elbow expanding his majority across the Tasman. Re-electing the incumbent means continuity in economic policy.
5. The Fed will likely hold rates steady this week given elevated inflation and no evidence of actual weakness in the labour market in the US at this point. The Bank of England, they look set to cut and in New Zealand, we get Quarter One employment data.
Ryan Bridge
All right, it is interview time and we’ve got a lot to get through today, so we’ll just crack straight on into it. We’re joined by Frances Sweetman, Milford Portfolio Manager and Head of Sustainable Investment. Just a note that this segment is informational only and should not be considered financial advice. Frances, welcome back to the podcast.
Frances Sweetman
Thank you.
Ryan Bridge
I was beginning to think you were avoiding me. It’s great to see you. And we have a, it’s sort of a good news story, what’s happening with the stock market – that it’s basically in large part recovered from Liberation Day already. People are kind of hopeful for what they’re hearing coming out of the White House.
Frances Sweetman
Yeah, that’s right. I mean, we just had this incredible month in April where we had the big tariff announcement on the second, and a big sell off in financial markets. A lot of bumpiness in the middle and then this real recovery towards the back end. And we’re now seeing markets at similar levels to before tariffs were announced, which is unbelievable. In fact, Morgan Stanley said it was the fifth most volatile month in 85 years. So, it really is an incredibly unusual time with all the changes in tariff rhetoric from much worse than expected to some easing back. You’ve got these Department of Government efficiency announcements – there was a huge flurry of out of Elon Musk and then they’ve really quietened down. And we’re also seeing some relatively resilient US economic data and people are very concerned about what’s going on in the underlying economy, given the risks that we’re facing. So, it’s an incredible environment.
Ryan Bridge
A lot of, as you say, a lot of very loud rhetoric coming out of the White House. Huge swings in reaction from the markets. But there are some complexities to this and we’ll talk about that. So, we’ve had Quarter One reporting season sort of starting, and we’re seeing some results. As you said, there’s some solid stuff coming out. But a lot of this was before Liberation Day, right? So, what are we seeing from these Quarter One results?
Frances Sweetman
Yeah. And they’ve been a real focus as investors try and understand what’s going on in the underlying economy, as I say. And actually, the first quarter appeared to be relatively resilient. The results have been pretty solid and have indicated that there is that broad base weakness starting to come through, or at least there wasn’t in the first three months of the year. And then when you match that with that slightly more resilient economic data, I think that’s been a real source of relief for investors.
Ryan Bridge
So, what does that tell us? I mean, what about the forward track, when the companies look forward and hopefully give us an idea of what they think will happen, given the tariff environment?
Frances Sweetman
Yes. And that is always the focus – that outlook. And this time, as you say, more than ever, we’ve got this three-month reprieve before those tariffs actually come in. And we’ve had this big drop in consumer and business confidence, and those more forward-looking indicators. So, investors were laser focused on company outlooks and any guidance that they’re prepared to give. And that was more difficult. It’s very, very difficult for companies to give an outlook in what is this incredibly uncertain environment, particularly when you can’t tell if there’s been a bit of pull forward in demand that was helping those resilient first quarter results and how, particularly consumers, are going to respond. So, outlook statements were definitely more cautious.
Ryan Bridge
This is the idea that perhaps everybody was getting ahead of the tariffs, ordering in, getting all of their raw materials and what-not ahead of time. So, it’s artificially inflated those Quarter One numbers.
Frances Sweetman
Exactly. And there were some signs that that was happening, but not consistent or broad based enough to make that a very strong indicator. And then we also had really poor weather in the US at the very start of the month. So, there may have been some shifts in demand in the second half of the quarter because of that. So not clear, but yes, some signs. And so that has made those outlook statements even more important than ever.
Ryan Bridge
All right. Let’s talk about some of these companies that are reporting. Let’s start with some big tech companies. What have we heard so far?
Frances Sweetman
Big tech was actually a source of real relief and was quite good. The likes of Google, Meta, Microsoft, all reported that demand was actually really solid for software, storage, advertising. Businesses are still spending and they’re actually quite confident in the outlook. They’ve got big pipelines and all of that demand appears to be really robust. So, that’s a great signal because there’s been two concerns really sitting on that sector. The first is some of the efficiency gains that the likes of deep CKI models have seen that suggest that we actually don’t need to spend quite so much on tech as we thought that we did. And then on the other side, US businesses could shut down investment in IT spending quite quickly in a very uncertain environment. But it doesn’t appear like either of those are translating into drops in demand at the moment. So, it was a great result season for those big tech companies.
Ryan Bridge
And what are they predicting about the future?
Frances Sweetman
Well, they only give us outlooks maybe six to nine months ahead, depending on where they’re sat in their financial year. And at the moment, they’re saying they’ve got really robust pipelines of demand across a broad range of customers, all their buckets of customers, in fact. So from what they see, IT spend is so incredibly important to the success of businesses and the development and growth in AI models and new ways of working that that is going to stay really resilient. So that’s the message from those companies.
Ryan Bridge
We’ve spoken about this before, Frances, but the strength of the US consumer. I mean, through last year, the strength of the US consumer was something to behold. It was like the energiser bunny that just kept on going and going and going and going. What are we seeing from some of those consumer-facing businesses about that consumer in the US?
Frances Sweetman
Yeah, and I think the consumer space was one of the main areas where that weakness in those outlook statements we were just talking about really came through. Again, the first quarter was pretty resilient. The likes of Visa, MasterCard, Amazon said spending held up OK. But consumers are definitely very cautious in the US. They’re spending less on restaurants and food. And the anticipation is that tariffs will raise prices and that will see consumers keep their hands in their pockets. So, we saw downgraded expectations across a wide range of food retailers, packaging companies, even leisure spend, things like airlines and hotels, both Wyndham and Hilton downgraded their outlooks.
Ryan Bridge
Maccas was down to0 a bit, wasn’t it?
Frances Sweetman
That’s a great example because it’s such a bellwether for the US economy and they saw US sales down about three and a half percent. But foot traffic across that really important, more low-income consumer that’s more sensitive to some of these changes was down double digit. So, that’s a real signal that the consumer is hurting and is very, very, very cautious.
Ryan Bridge
So, a very mixed picture and a lot of uncertainty looking forward, as you say. What about the UK and Europe? Because this was seen as almost the panacea. It was seen as the tonic to what was going on in the United States has been – companies there living up to expectations.
Frances Sweetman
Actually, they are. I’ll give you a few examples. Banks is quite a big economy in Europe and the UK. So quite a big part of the economy in Europe and the UK, quite a big part of the share market. And also, again, just a really broad based exposure to understand what the consumer and businesses are doing. They all reported good results. They’re not seeing any signs of weakness or stress across any of their customer buckets. So that was helpful. Again, packaging companies, they reported better sales in Europe than the US and even really tough industries like UK supermarkets said UK consumers are responding really well to promotions, additional advertisement. And that’s a very different picture to the US where perhaps cheap deals are seeing consumers switch to spend less, but not necessarily buy more. Whereas in the UK, consumers are still buying more when they see really good value, great offers. So, it just flagged the difference between what’s going on in Europe and the UK and what’s going on in the US, which is great. So, I think it really helped reassure investors that it’s still a safe place to hide.
Ryan Bridge
Yeah, so that’s a good way to put it, a safe place to hide. I want to talk about that in a second. But how are the markets reacting to those results in Europe and the UK?
Frances Sweetman
I mean, those share markets continue to be strong. It’s really difficult to unpick why, but I think those results would have definitely helped.
Ryan Bridge
Is there a risk, because everybody talks about it. I mean, you said everyone likes to run to for safety. Is there a risk with everybody doing that to the UK and Europe – that something goes wrong there? I mean, do you need to be prepared for unexpected things everywhere?
Frances Sweetman
It’s such a great point because one of the things that can really catch you out in share market investing is complacency and not expecting the unexpected. And it has become a real safe haven. And you have seen investment or money flow out of US share markets and into European and UK share markets because of that real shift in outlook. And if maybe we get, say, a real U-turn in tariffs and suddenly the US puts huge tariffs on EU.
Ryan Bridge
Trump does a China on the EU.
Frances Sweetman
Exactly. Not what we expect, but expect the unexpected. Then, given that everyone is hiding over there or there has been this shift of flow in investments to the EU and the UK, then that would be a material negative for those markets. So, it’s a good reminder not to be complacent.
Ryan Bridge
Right, looking ahead, who haven’t we heard from yet? And what are you expecting?
Frances Sweetman
So, we’re about 75 percent of the way through now. But I think the area of the economy that we haven’t heard from, particularly in the US, is some of those sort of manufacturing businesses, that kind of business investment part of the economy, industrial companies, more sort of broad-based industrial companies. And that will be really interesting because business confidence has dropped the same as consumer confidence. And so, this could be another real area of weakness where businesses are not willing to invest or not willing to spend ahead of what could be material changes in their market and cost space. So, we’re expecting a bit of caution there. And then the other one that hasn’t yet reported is, of course, Nvidia. That’s not till right at the end of the month. And that’s always a real signal of broad-based market feel or market confidence, the response to that result.
Ryan Bridge
Vibes.
Frances Sweetman
Yes that’s right. But I mean, a lot can happen between now and the end of May. So, you know, I think it’s almost sort of not today’s problem yet.
Ryan Bridge
Frances, thank you so much for coming back on the podcast. Don’t leave it too long till we see you again.
Frances Sweetman
Thanks, Ryan.
Ryan Bridge
Lovely to see you.
Frances Sweetman
You too.
Ryan Bridge
I’m sure we’ll see Frances again soon. That’s Frances Sweetman, Milford’s Head of Sustainable Investment and a Portfolio Manager. That’s it for this week. We’ll look forward to next week’s instalment of the Bridge talks Business podcast with Milford. Don’t forget you can like, follow and subscribe wherever you listen to your podcasts. See you then.
Missed previous episode? Don’t worry! Click here to catch up now.
