Wall Street Lunch: Hot PCE, Soft Growth, Red-Hot Jobs Signal Conflicting Trends (undefined:QCOM)

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This is an abridged transcript of the podcast:

Our top story so far, the first look at Q1 growth showed a modest slowdown, while inflation remained firmly above target. But the labor market delivered a once-in-a-half-century surprise.

GDP rose at a 2% annual rate, below the 2.2% consensus but up sharply from 0.5% in Q4, which was weighed down by the government shutdown.

Inflation accelerated. The quarterly PCE price index rose 4.5%, above the 4.1% consensus and up from 2.9% in Q4. Core PCE increased 4.3%, also topping expectations. For March, core PCE rose 0.3%, with the annual rate at 3.2%.

Oil prices tied to the Iran conflict helped lift inflation pressures, while consumer spending growth cooled.

Mark Zandi of Moody’s said unless the war eases and oil prices fall materially, growth in the current quarter could weaken and recession risks rise.

Joseph Brusuelas called the data an “echo of what might have been,” arguing that AI-led investment tailwinds have been partially offset by what he described as an adverse supply shock from the Iran war.

Markets reacted quickly. Treasury yields reversed much of their post-Fed gains and fed funds futures shifted back toward pricing in better odds of a rate cut this year — though the probability of no move remains above 80%.

Meanwhile, the labor market surprised to the upside. Weekly jobless claims fell to 189K from 215K, the lowest level since 1969 and well below the 213K forecast. The four-week average declined to 207.5K.

Pantheon Macro said the drop, which was broad-based across states, hints the labor market may have turned a corner — though one week’s data is not definitive.

Among active stocks, Qualcomm (QCOM) is among the top S&P gainers after outlining plans to begin shipping custom silicon to a major hyperscaler in Q4, a development that overshadowed results and guidance that came in below expectations.

RBC also highlighted management’s view that the third quarter is likely the bottom for China handset builds.

International Paper (IP) is sliding to its lowest level in nearly three years. The company reported slightly better-than-expected Q1 adjusted earnings but narrowly missed on revenue and lowered its adjusted EBITDA outlook for the current quarter.

For Q2, IP guided to adjusted EBITDA from continuing operations of $520M to $570M, down sharply from $733M a year ago and well below the $701.9M FactSet consensus.

And Willis Towers Watson (WTW) is the biggest decliner in the S&P after Q1 revenue came in just shy of expectations. Organic revenue growth slowed to 3%, roughly half the 6% pace seen in Q4.

And in other news of note, Avis Budget (CAR) CEO Brian Choi pointed to trading activity by investment firm Pentwater Capital as a key driver of the stock’s recent short squeeze.

Shares surged from around $145 a month ago to as high as $847 last week before falling back to about $181.

Pentwater, Avis’ second-largest shareholder, disclosed a 9% stake as of Dec. 31. According to Choi, the firm crossed the 10% threshold on Feb. 20 and reported holding a 39% economic interest through stock and cash-settled swaps.

By March, that economic interest had increased to 51%.

Choi said the rapid increase in ownership, combined with high short interest in the stock, helped fuel the squeeze.

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