April 2025 Monthly Market Update
By | May 19, 2025U.S. policy, equity markets, and interest rates swung widely during April triggered by a “Liberation Day” declaration by President Trump on April 2nd. Trade war rhetoric, generationally high tariff rates, and significant uncertainty ensued as markets digested nearly a daily occurrence of new tariff policy indications during the month. The month turned out to be a tale of two halves for equity markets where the U.S. rebounded from -11.2% on the month (-15.3% ytd) to close down only -0.50% for April (-5.3% ytd).
Concerns over inflationary pressures from high tariff rates, speculation over wavering appetite by foreign buyers for U.S. treasury bonds, and a continuation of high fiscal budget deficits translated to an an inordinate amount of volatility in interest rates as well with 10yr yields bottoming at 4.01% in early April, surging to 4.48% by April 11th, only to settle back to 4.17% at month end. From a currency perspective, tariff and global trade shocks led to broad USD weakness as the Euro and Pound touched three year highs. Appreciating foreign currencies relative to the USD contributed greatly to the 2025 ytd outperformance of developed (+11.8%) and emerging markets (+4.3%) relative to the U.S. (-5.1%) through April.
From a macro perspective, hard economic data including job creation, unemployment claims, retail sales, vehicle sales, core capital goods shipments, and manufacturing production have remained buoyant while survey and sentiment measures fell sharply due to record levels of policy uncertainty. Consumers and businesses’ front-running expected tariff taxes pulled forward purchases of imported goods leading to a record trade imbalance, causing Q1 GDP to dip slightly into negative territory (-0.3%) as other components of GDP, while slowing, remained generally positive.
Market Anecdotes
- One of the aftereffects of tariff negotiations was U.S. Q1 GDP contracting 0.3% – vulnerable but not collapsing. The print was largely due to net exports detracting 4.83%, the largest since 1947, but uncertainty also saw personal consumption fall to 1.8% from 4.0%.
- Another trade war ripple effect was evident in April new export orders which plunged to 43.1, a level associated with recessions and Trump 1.0 trade war.
- Hard data (GDP, job market, inflation), backward looking by default, remains relatively sanguine while soft data (sentiment, manufacturing and service surveys, inflation expectations) is indicating turbulence across both consumers and businesses.
- Policy uncertainty may be translating to reluctance of non-U.S. investors to invest in U.S. assets, contributing to falling USD and UST demand.
- As we go to print, the S&P 500 has posted encouraging blended earnings and revenue growth of 13.4% and 4.8%, respectively. This has topped beginning of quarter expectations of 7.1% and 4.3%, respectively.
Bullish Asset Allocation Narratives
- Administration officials, bond markets, and public opinion have and will continue to push for expedient resolutions to trade disputes. Peak tariff panic is in the rearview mirror.
- A brief growth slowdown remains much more likely than sustained stagflation given the manmade nature of the trade crisis and ability to course correct/save face abruptly.
- Potential for swift course correction on tariff policies, possible fiscal stimulus (tax cuts), and likely business friendly deregulation encourages focus on the intermediate term horizon.
Bearish Asset Allocation Narratives
- Heightened and persistent uncertainty is translating to concerning indications in hiring intentions and negative sentiment risking declines in employment, capex, and consumption.
- The Fed overstaying restrictive policy due to pipeline inflation, high inflation expectations, and strong labor market poses risks to growth in the event tariff de-escalation happens quickly.
- Technical factors in U.S. bond markets (upward pressure on rates) present unique challenges for investors and overall cost of capital implications across the economy.
Outlook
As we enter the month of May, we have and continue to advise clients to look through the tariff related volatility given our modestly constructive view of global equity markets over our 12-24 month forecast horizon with a tilt toward value stocks relative to growth. Until we begin to see deterioration in hard economic data, it is a stay the course message with rebalancing into strength. From a duration standpoint, we are maintaining a neutral stance at this time as we monitor growth and inflation impacts of U.S. trade policies along with developments in both fiscal and monetary policy.
Summary of Recent Economic Reports
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