Wall Street opened to a gut punch. The S&P 500 dropped 2 percent this morning after a GDP print that stunned everyone on the floor. Expectations called for mild growth, something in the ballpark of 0.3 percent. What we got instead was a contraction. GDP fell 0.3 percent for Q1. That is not a rounding error. That is a reversal.
Yet by the close, the wreckage was gone. Stocks turned green. The machines faded the crash like it never happened. It’s becoming a routine now. Bad news hits. The market wobbles. Then algo-driven optimism pulls it back into the green.
This is not natural trading. It is engineered behavior.
Microsoft and Meta added fuel after hours. Their earnings beat estimates and will likely lift futures into the next session. But strip away the surface and the picture gets darker by the hour.
S&P 500 earnings for 2025 are now projected at 260.07 dollars. That is barely 9.5 percent growth. Yet the index trades at a price-to-earnings ratio of 20.7. It is now priced at more than double its growth rate. That kind of distortion cannot last. Fundamentals do not vanish. They wait. And when they hit, they hit hard.
Today’s action feels like early 2022 all over again. Euphoric peaks. Waning earnings. Sticky inflation. Delusion replacing discipline.
Technically, bulls are aiming for 5630 on the S&P 500. That fills the open gap from the post-Liberation Day plunge and completes a head and shoulders top formation. Oversold just weeks ago, the market is now pushing into overbought territory again.
But no chart pattern can explain away the data we just saw.
The economy is shrinking. And prices are rising. That is stagflation. It is here.
GDP fell 0.3 percent. Inflation, as measured by the GDP Price Index, surged 3.7 percent. That is the fastest clip since August 2023. Core PCE, the Fed’s favorite inflation gauge, also rose 3.7 percent. Expectations were 3.1 percent. The previous number was 2.6 percent.
This is a sharp reacceleration, not a soft landing.
And bond markets are catching on. The 10-year Treasury yield surged nearly 10 basis points after the report. Normally, yields fall when growth shrinks. But not this time. This time, the bond market sees inflation refusing to go down. The Fed cannot cut. And the economy cannot grow.
This is Powell’s nightmare. He is trapped.
Cutting rates would risk igniting inflation. Hiking into a contraction would deepen the downturn. Doing nothing could make both worse. The so-called Goldilocks zone is gone. This is a no-win scenario for the central bank. And the market is beginning to understand it.
Sources:
https://x.com/KobeissiLetter/status/1917568989758173677
https://x.com/SuburbanDrone/status/1917700716350628073