Economic Contraction
The U.S. economy contracted at an annualized rate of 0.3% in the first quarter of 2025 (1) (preliminary data release on 4/30/25), marking the first negative GDP reading since Q1 2022, driven primarily by a record surge in imports as businesses and consumers front-loaded purchases ahead of President Trump’s tariff policies. This contraction, coupled with a slowdown in consumer spending to 1.8% from 4.0% in Q4 2024, fueled recent stock market turmoil, with volatility spiking as investors grappled with tariff-related uncertainty and fears of prolonged economic weakness. While underlying demand remained resilient, with business investment in equipment rising 22.5%, the GDP decline underscores the uneven economic landscape of the rolling recession that began in June
2022.
The decrease in real GDP in the first quarter primarily reflected an increase in imports, which are a subtraction in the calculation of GDP, and a decrease in government spending. These movements were partly offset by increases in investment, consumer spending, and exports.
Rolling Recession
What many people don’t know is that since June 2022, a rolling recession has quietly unfolded, marked by uneven economic contraction across sectors and obscured by pockets of resilience. This perspective aligns with the data provided by The Conference Board of a rolling monthly period of negative economic activities we called recession, where specific industries face downturns at different times rather than a broad, synchronized collapse (2). The recent stock market turmoil, marked by heightened volatility and sharp declines, represents what we believe to be the final leg of this prolonged economic adjustment. This essay outlines the evidence supporting our view, the role of impending trade negotiations and tariffs, the trajectory of inflation, and our strategic investment focus in technology, bio-science, and healthcare.
We have experienced a “rolling recession” since June 2022 and are only now emerging from it. However, authorities are not labeling it a recession due to high employment data (3).
The rolling recession began in mid-2022, as sectors like housing and manufacturing contracted under the weight of rising interest rates and persistent inflation. Housing starts plummeted as mortgage rates surged, while manufacturing indices, such as the ISM Manufacturing PMI, signaled contraction for much of 2022 and 2023. Meanwhile, consumer spending and services held up, buoyed by residual pandemic savings and a robust labor market, masking the broader slowdown. Retail and consumer discretionary sectors, however, have shown cracks since early 2023, with weakening discretionary spending reflecting strained household budgets. The recent stock market turbulence, driven by fears of tighter monetary policy and global trade disruptions, signals the culmination of this staggered downturn, as investors grapple with uncertainty across multiple fronts.
Trade Talks & Inflation
A key factor in our outlook is the anticipated clarity from ongoing trade negotiations, particularly between China and the U.S., where positive efforts signal potential tariff reductions (4,5) and exemptions for key sectors like technology, fostering optimism for global trade stability. These talks are expected to clarify the scope and scale of import tariffs, a persistent concern for markets. Tariffs, if implemented, will likely create short-term inflationary pressure by increasing the cost of imported goods. However, we believe this impact will be temporary, as businesses and consumers adapt through supply chain adjustments or price absorption. Inflation has largely stabilized, with key drivers—oil and shelter—showing signs of cooling. Oil prices, though volatile, have eased from their 2022 highs, and shelter costs, a major CPI component, are softening as rental markets weaken. Long-term inflation remains subdued, supported by structural trends like automation and digitalization, which continue to curb wage and price pressures.
5-Year Forward Inflation Expectation Rate on a downtrend currently at 2.23% from St. Louis Fed. (6)
Interest Rate
The Federal Reserve’s monetary policy remains pivotal. Despite market expectations of four interest rate cuts in 2025, we anticipate the Fed will proceed cautiously, with a likely cut in June as inflationary pressures from tariffs prove manageable. The Fed’s dual mandate—price stability and full employment—supports this view, as labor markets remain resilient and inflation trends downward. However, the exact number of cuts will depend on incoming data, particularly on trade policy outcomes, consumer spending, inflation tend, and employment
trend.
The market is now fully pricing in four Fed rate cuts this year (7)
Path Forward
Our investment strategy reflects this economic backdrop. We see significant opportunities in technology, bioscience, and healthcare, which are poised to thrive despite macroeconomic headwinds. Within technology, artificial intelligence, cloud computing, and cybersecurity remain our core focus areas. These subsectors benefit from strong secular growth drivers and are less vulnerable to budgetary cuts, as enterprises prioritize digital transformation and data security. Bio-science, after years of underperformance, is at an inflection point, with breakthroughs in gene editing, precision medicine, and biologics attracting renewed investor interest. Healthcare, broadly, offers defensive growth, supported by aging populations and rising demand for innovative treatments. Conversely, we remain cautious on the consumer sector, where spending patterns are erratic, and discretionary purchases face pressure from tighter budgets and shifting priorities.
The rolling recession that began in June 2022 has unfolded across sectors, with the recent stock market turmoil marking its final phase. Clarity from trade negotiations will resolve uncertainties around tariffs, which we expect to have only short-term inflationary effects. With inflation stabilizing and the Federal Reserve poised to cut rates, the economic outlook supports selective optimism. By focusing on technology, bio-science, and healthcare—while avoiding the uncertain consumer sector—we position ourselves to capitalize on resilient, high growth opportunities in a transitioning economy.
REFERENCES
1. Bureau of Economic Analysis, Gross Domestic Product – 1st Quarter 2025, April 30, 2025
2. The Conference Board, Leading Economic Index® (LEI) for the US, April 21, 2025
3. RecessionALERT, US Monthly Leading Index (March 2025), April 27, 2025
4. CNN, China Says It’s Evaluating Possible Trade Talks with US, May 2, 2025
5. Bloomberg, Trump Says He’s Willing to Lower China Tariffs at Some Point, May 4, 2025
6. FRED, 5 Year Forward Inflation Expectation Rate, May 2, 2025
7. DailyShot, Four Rate Cuts Fully Priced In, May 1, 2025
From the desk of our Chief Investment Officer
As an investment professional with over twenty-six years of experience in the financial services industry, Andrew helps clients to protect, grow and transfer wealth during their lifetime with objective, unbiased, customized and efficient strategies.
Education, Professional Licenses Acquired & Affiliations
- Series 7, 63, 65 and 24 Licensed.
- Currently holding Series 65 License registered with SEC
- BA in Economics – Boston University (Boston, MA) 1993
- Certificate in Commodities Trading – New York University (New York, NY) 1991
- Certificate in Financial Planning – New York University (New York, NY) April 2011
With extensive experience in the Financial Services Industry, Andrew Tang and Turner Financial Group provides disciplined wealth management with an intelligent caring approach to each and every client that compliments the Dedicated Financial offering.
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