Uncertainty reigned through April and likely will continue to do so, at least in the near term. Markets have reacted, both negatively and positively, to every headline coming out of Washington. On April 2, President Donald Trump’s declaration of “Liberation Day” sparked a selloff of 19% in the equity markets as the announced tariff rates were considerably higher than expected. Then, amid stronger-than-expected first-quarter earnings and a softening rhetoric on tariffs, markets recovered 62% of the drawdown by the close of the month. The effects of the new tariffs won’t be seen in corporate earnings until second-quarter reports, and so remain uncertain.
Bond markets also experienced extraordinary volatility, rattled by tariff headlines and concerns that President Trump would fire Federal Reserve (Fed) Chair Jerome Powell. A softer tone on tariffs and walking back the comments about Powell helped bond yields and took some of the stress out of the market by the end of the month.
Before we dig into details, here’s where the major indices stand.
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*Performance reflects index values as of market close on April 30, 2025. Figures for the MSCI EAFE and Bloomberg Aggregate Bond reflect the market close on April 29, 2025.
Aggressive action in Washington shapes volatile market landscape
The markets’ rollercoaster in April was driven by aggressive tariff actions and shifting policy signals from the administration, including a 10% global tariff and additional country-specific tariffs as high as 145%. While the administration’s announcement of a 90-day pause on the additional tariffs and new exemptions for select tech goods offered temporary relief, the baseline 10% tariff remains in place and is likely to be more durable than expected, as legal and Congressional challenges face hurdles.
On the fiscal front, the House and Senate passage of a budget resolution has set the stage for what could be the largest reconciliation package in US history. Reconciliation is a process to close Senate debate with a simple majority on certain budgetary matters, avoiding filibusters. The package contains $5 to $7 trillion in tax cuts and new spending offset by $1.5 trillion in reductions — particularly from Medicaid and student loans. The reconciliation bill is likely to deliver $500 billion to $1 trillion in near-term stimulus.
Export controls also tightened, with immediate licensing requirements on advanced chips to China that are unlikely to be granted, effectively serving as outright bans. The upcoming AI diffusion rule, due by May 15, could further impact semiconductors as the US seeks to align controls with allies and increase its lead in advanced semis and AI. For markets, tariffs and tech controls are becoming important tools for economic policy, and while the upcoming fiscal stimulus may be robust, the environment will remain highly volatile as the administration tests the limits of its new playbook.
US economy waits in tariff anticipation
The US trade deficit in goods and services was in line with expectations in March and slightly lower than the record-breaking deficit in January as firms continued to stock up on imports ahead of the imposition of tariffs. The trend is likely to continue, given the president’s April 2 announcement of much larger tariffs, and remain a drag on US gross domestic product (GDP) growth.
Better-than-expected Consumer Price Index (CPI) numbers were good news for the Fed and the economy, but may be the last disinflationary year-over-year print this year as tariffs begin to affect prices. The recent decline in petroleum prices and the continuing disinflationary trend in shelter costs may temporarily mitigate the upward pressure on prices.
Markets’ tariff tug-of-war
After a strong start to the year, the S&P 500 experienced a sharp three-day drawdown (-15%), followed by a robust +10% one-day rally on news that Trump would pause part of the tariffs in April. Since then, the market has attempted to digest the potential economic and inflation risks, leading to further back-and-forth volatility. Investors are caught in a tug-of-war between the fact that this drawdown could be reversed quickly versus the risk that the White House digs its heels in and continues the trade war, with the potential for additional sector-specific tariffs, such as for semiconductors and pharmaceuticals.
Bond yields remain flat
Like the equity market, the bond market roiled, but closed April roughly flat. Treasury rates had marginal net changes over the course of April. Two- and three-year rates are down 11 and 12 basis points, respectively, while the 10- and 30-year rates are up eight and 17 basis points, resulting in a slightly steeper Treasury curve. Corporate spreads widened slightly, as did municipal yields as a percent of Treasury yields.
No time to panic over US dollar
The trade war and general unpredictability of administrative policy have put downward pressure on the US dollar over the last three months, and the greenback is down 10% since January 20. This is not unprecedented. The dollar saw a 10% drop over a similar timeframe in 2009 and 8% to 9% drops in 2003, 2004, 2010 and 2022. In every case, the dollar ended up bouncing afterward, in varying degrees. It’s also worth noting that, even with the latest drop, the Dollar Index is only slightly below the midpoint of its 10-year range and slightly above the midpoint of the 25-year range.
US-China economic decoupling continues
The process of reducing economic ties between the US and China, which began during the first Trump administration, continues. The latest escalation in trade tension – with the US tariff on Chinese goods now at 145% and China’s retaliatory tariff rate on imported US goods at 125% – could, if sustained, lead to most bilateral trade ending within the next few years. While both the White House and China have indicated a willingness to negotiate, the markets are not holding out hope for an agreement anytime soon.
Beyond trade, the conflict between the US and China could broaden to investment flows and financial measures. In February, the Trump administration published an “America First” investment policy laying out potential steps that include delisting Chinese firms from US stock exchanges. In response, China could choose to weaponize its US Treasury holdings, dumping bonds on the market to drive yields higher.
The bottom line
It’s helpful to remember that economic data lags, so the markets will shift on regular reports and the effects of tariffs on earnings and GDP are yet to be seen. Expect high levels of volatility to continue as the markets are heavily shaped by presidential policy. Plenty of uncertainty remains, so changes can happen quickly.
- By the end of 2025, we expect a slowing of economic growth in the United States, but not a recession.
- We expect U.S. equities to be volatile for much of 2025. Returns should be positive, but more in line with historical averages, as well.
- We believe that interest rates will continue to fall in 2025.
- Cash is king and Bonds are back. We would look to add traditional fixed income, particularly money markets & short-dated bonds, for safety and stability for 2025.
- We recommend investors continue to consider an overweight of alternative investments, including both private equity and debt.
- Gold has broken through $3,000. We expect to see continued higher prices long-term and have raised our target to $3,300 per ounce, in 2025.
- Cryptocurrencies soared in 2024 but have had recent weakness. We expect continued volatility, but appreciation in 2025.
- Depending on your timeframe, current investment strategies should be based on what’s happening “Now,” “Next,” and “Later.
- Don’t panic. Be patient. Look to profit.
As always, we are dedicated to helping you achieve your financial goals and appreciate the continued trust you place in us. If you have any questions about this report or need assistance with anything, please feel free to contact us. We look forward to connecting with you soon!
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