Back to Earnings as Uncertainty Rolls Over.

We believe uncertainty has peaked and we’re now seeing signs of normalization just as expected. The alignment of incentives — both political and corporate — points toward de-escalation, not escalation. And this week, was more of that message.

From a single-day cluster of headlines — India/US trade deal talk, Powell staying put, more deals hinted by Bessent, and even Musk pulling back from the DOGE, to retail giants like Walmart and Home Depot heading to the White House, the momentum is shifting toward clarity. Hopefully this is the direction forward. I suspect it will but it will not be linear forsure. On top of that, jobless claims remain tame, a key indicator that economic activity is still stable and resilient.

Corporate earnings continue to support this foundation — led by strength at Google, while Tesla’s ongoing weakness looks increasingly self-inflicted. And across AI demand, we’re still not seeing signs of deterioration.

Let’s get to the data.

Here is the summary if you want just that:

• Economic Uncertainty Index is rolling over from peak.

• Earning season is shedding light on current conditions.

• Sentiment and inflation data show fear is overextended.

The 5-day moving average of the Economic Policy Uncertainty Index spiked to its highest reading since early 2020 — but has since started falling, reinforcing our call that this was a short-term peak, not a new long-term regime. Markets tend to bottom when fear peaks. This chart supports that. The reversal in uncertainty — paired with stable jobless claims helps setup a solid foundation.

This forward return matrix shows that when the uncertainty index hits extreme levels (like this month), future returns over 90 to 220 days tend to be well above average. The top decile historically returns +16.6% over 220 days and the top readings have returns north of 34% 12 months out. When uncertainty hits the 98th percentile, staying invested has paid off far more often than not. Forward probabilities are firmly in the investor’s favor here.

The AAII Bull/Bear ratio hit 39, one of the lowest readings since 2020. Meanwhile, the short- vs. long-term volatility ratio (VIX/VXV) sits at 1.0, suggesting fear is still high, but not disorderly. Together continues to mean more room for climbing walls of worry.

Now we are looking for signs of inflation to see if prices are being passed. However today nothing. Used cars is only area. Real-time inflation tracking via Truflation shows US inflation at just 1.4%, down from nearly 3% a year ago. Importantly, this decline has accelerated since February, despite all the tariff headlines.

Turning to some earnings reports. Alphabet reported $90.2B in Q1 revenue (+12% Y/Y) with Cloud up +28%, YouTube +10%, and Google Play +19%. Net margins expanded to 38%, showing strength both in growth and operating leverage. Consumers, advertisers, and enterprises are all still spending. Alphabet’s mix shows that demand is healthy across digital verticals. The only area of weakness was Asian advertisers who make up single digit share of both Google and Meta.

Net net- Google saw strong growth across the board.

Another standout is their continued investment spend on capital expenditures. They spend $17B in the quarter and that was growth of 43% Y/Y, an acceleration from the past quarter. This spend is mostly on AI. Remember Google benefits from AI and can use across all its vertical from Search to YouTube, Google Cloud, Waymo, and their Gemini product line.

Lastly. While I spoke about jobless claims remaining stable, Capital One reported and they released $368M in credit reserves this quarter, driven by improvements in the domestic card portfolio. The allowance release shows net improvement in expected losses which is counter to the economic narrative at the moment. Credit is one of the best real-time economic indicators — and this suggests consumer health is holding up. It’s not booming, but it’s not falling apart either. A quietly bullish data point.

That’s a wrap for this week. Next week brings another wave of earnings from the world’s biggest brands. For now, the data is telling a clear story: uncertainty has peaked, the macro picture remains stable, and earnings are holding up. Beneath the noise, the foundation looks stronger than it seems.

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About Avory & Co.

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Avory specializes in high-conviction equity strategies, emphasizing Secular Growth and Transformation Stories driven by exceptional teams. Data guides decisions. We cater to high net worth investors, family offices, and institutional investors. Note: This information doesn't constitute a recommendation to buy or sell any mentioned securities. Avory is based in Miami, Florida with clients all across the globe.

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