Market Update: April 14, 2025

Economic data included a significant pause in the U.S. administration’s total tariff policy, resulting in some relief of recession fears for now. Consumer price inflation came in slower than expected, with the year-over-year rates also declining, as did producer price inflation to some degree. Consumer sentiment remained poor, with inflation expectations rising sharply.

Global stock markets experienced one of the more volatile weeks in many years, but ended on a positive note largely due to Wednesday’s gains as a pause for some tariffs was announced. Bonds fell sharply due to a spike in longer-term U.S. Treasury yields. Commodities were mixed to higher, helped by a falling dollar and flight to quality in precious metals.

U.S. stocks earned surprisingly solid positive returns on net last week, with several daily price swings dominated by Wednesday’s explosive gains. Sector results were led by technology (up nearly 10%), industrials, and financials, while energy and defensive consumer staples and health care lagged with far lesser gains of a few percent. Real estate declined only slightly, despite the spike in yields.

U.S. stocks haven’t experienced this much day-to-day (or hour-to-hour) volatility in years, by some measures since the fall of 1987, Great Financial Crisis in 2008, and 2020 pandemic—comparisons that have unnerved many investors. The primary driver has obviously been the ‘uncertainty’ and real-time changes in the U.S. administration’s tariff policy. Practically daily, these have included steadfast or escalations in tariff stances corresponding to drawdowns and signs of relief or pause reverting to temporary euphoria. Based on estimates from Goldman Sachs, the ending tariff rate could well remain far higher than it was, but stopping at a weighted average of around 15%, as opposed to the earlier estimates of 20-25%. So, a strain on the economy and inflation no doubt, but not quite as bad as the worst fears.

During the week, stocks had resumed their negative path from the prior week on Monday morning, down several percent further, but quickly flipped upward into positive territory with rumors of the White House implementing a 90-day pause on new tariff policy. Though, when that was dismissed as rumor (at least at that time, and perhaps spooking investors holding short positions as much as anyone), stocks reversed back into decline, but flip-flopped several times, on one of the more volatile days in a decade. While tariffs on China of an additional 50% were threatened, the latter vowed to ‘fight to the end,’ with a U.S. tariff of 104% being imposed, followed by their own tariff of 84% on U.S. goods. (Chinese imports from the U.S. are relatively small in the whole scheme of global trade. However, U.S. tariffs on Chinese exports are expected to pull down Chinese GDP by several percentage points—with growth there already being in a fragile state as of late. Likely, such pressure was precisely the point of the announcements.) Along with some apparent pushback from some well-known names in the financial community and Senate, not to mention rising interest rates, Wednesday’s announcement of an actual 90-day pause in the country-specific tariffs (while keeping the 10% global minimum reciprocal rate) created the strongest upward day for the S&P 500 (+9.5%) since 2008 and 24 years for the Nasdaq (+12%). However, tariffs on China were taken up to 145%, and that reality hit home as tempered sentiment resulted with declines again on Thurs. The Chinese reciprocated to some extent, taking their tariff rate on the U.S. to 125%, but appeared to indicate that was the limit. Over the weekend, electronic products like smartphones and laptops were labeled as exempt from tariffs, with further clarity expected early this week.

In the wake of last week’s market soap opera, investors continue to weigh the impacts of overall tariff rates on individual sectors and companies, complicated by a fast-changing environment with hopes for extensions and pauses in policy implementation. The backdrop includes a deep-seeded concern that the longer that robust tariff rates last, the higher the chances of moving straight into a U.S. recession (and potentially a global one as well). This has been viewed by many economists as an ‘own goal’ of sorts, with investors using the broad ‘uncertainty’ cloud to pull back on risk generally until the dust clears, which could hinge on more substantive updates from the U.S. administration. That said, it’s again a reminder that markets dislike ‘uncertainty’ much more than they dislike even terrible news, which can be digested more quickly. That said, recession odds appear to have risen, but perhaps still not over 50% at this point, according to a variety of economists.

Almost an afterthought, first quarter earnings reports for U.S. companies have just begun, with FactSet predicting 7% S&P 500 EPS growth for Q1, led by health care, technology, and utilities. Revenue growth of over 4% is expected for the index as well. The assumption is that Q1 might be largely disregarded, due to the intense investor focus on tariff impacts on future quarters and management tone around consumer spending sentiment and status of capex spending plans in light of current trade policies.

Developed market foreign stocks earned negative returns in local terms, while a decline in the U.S. dollar boosted Japan and Europe into the positive for U.S. investors. There were few unique stories other than a focus on impacts from U.S. tariffs as we might expect to see until greater clarity surfaces. This was particularly true in emerging markets, where Chinese stocks fell by around -8%, presumably due to the negative economic impact of a trade war.

Bonds also experienced a rough week, which was a bit mysterious to some observers, due to their more frequent role as a positive safe haven in times of stock market turmoil. While a drop in long-term yields the prior week appeared to be driven by the easier common explanation of weaker growth fears, last week was full of speculation about causes for the sharp upward move in rates. These included theories about general unwinding of U.S. assets by foreign investors, such as rumors of China dumping more of their already-shrinking U.S. Treasury holdings. It’s worthwhile noting that moves of that magnitude could be a double-edged sword to some degree, as a large owner of Treasuries would also need to find another asset capable of absorbing as much liquidity and providing the same safe haven benefits that U.S. government bonds do. (There aren’t many lower-risk/high credit quality assets in the world that can fulfill both criteria.) This decline in Chinese holdings of U.S. debt has already been a work in progress for a decade, as their rank as a percentage of total foreign owners has fallen from $1.3 trillion (or 20% of total foreign ownership) around the peak in late 2013, to around $750 bil. today (less than 10% of foreign ownership). Also, much of the Treasury debt they do own has a maturity of 5 years or less. Other immediate causes of the yield spike have allegedly been due to some institutional forced sales in efforts to raise cash. As with several prior volatility episodes (albeit more extreme, LTCM in 1998 and the GFC in 2008), even ‘safe’ assets become pools of ready capital for meeting margin calls and other liquidity needs. These also include higher volatility from ‘basis’ trades, where some market participants attempt to take advantage of yield differentials between Treasury bond spot and futures rates, and are often sharply leveraged, resulting in margin calls due to extremely high rate volatility.

Was the pause in tariff implementation by U.S. officials forced by higher U.S. Treasury funding rates? Given that no substantial country-specific concessions had been made prior, this seems at least partially at play. A larger open question has been a feared potential shift in foreign investor sentiment away from U.S. assets generally, seen somewhat with a reversal in the U.S. dollar back down from a recent cyclical peak (in contrast to a typical strengthening reaction to tariff announcements), with the USD index now down -7% year-to-date. The status of the USD as a global safe haven certainly may have eroded a bit, due to the recent trade policy aggressiveness and announcement inconsistency, as well as the appearance of self-inflicted damage to near-term U.S. economic growth relative to other regions. Long-term, though, as the largest and most liquid global bond market, the role remains little changed with few other competing alternatives with comparable size and scale.

Commodities were mixed last week, with a drop of several percent in the U.S. dollar, and sharp gains in precious metals as global investors sought a safe haven from volatility in both stocks and bonds. Gains were also seen in industrial metals and agriculture, while energy fell back. Crude oil prices fell a bit last week to $61/barrel, with volatility largely driven by wavering positive and negative sentiment surrounding global demand and recession risk, as with other risk assets, while natural gas prices fell even further.

The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness.  All information and opinions expressed are subject to change without notice.  Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product.