Spring Volatility Continues

Quick Take: Stocks closed in on bear market territory before staging a comeback following temporary relief from sweeping global tariffs. Bonds ended a see-saw month with gains.

 

After the administration unveiled tariffs against trade partners around the world on April 2nd, stocks sank, with the S&P 500 dropping more than 11% for the month, down almost 20% from February all-time highs.[1] After a remarkable comeback, the S&P 500 posted a 0.8% loss for the month of April, and the tech-heavy Nasdaq led the way with a nearly 0.9% gain for the month. [2]

Source: https://www.bloomberg.com/news/articles/2025-04-30/stocks-tumble-at-open-as-weak-economic-data-dents-confidence

Since April 2nd, over $30 billion of retail money has flowed into stocks and ETFs, as retail investors have been aggressive buyers of US equities. [3]

What fueled this sharp bounceback? The simple answer might seem like tariffs, (along with those now on a 90-day pause), but the reality is that the bond market paved the way.

Weight of the Bond Market

The breadth and depth of the tariff announcements took markets and trade partners around the world by surprise.[4] As the stock market lost more than $6 trillion in market value, the administration appeared unwavering as 10% baseline tariffs were applied on all imports and additional custom “reciprocal” tariffs were to go in effect April 9^th.[5]  These tariffs were calculated as half of the trade deficit (essentially the amount imports exceed exports) divided by imports from a given country.[6]

Investors initially fled to the safety of Treasuries, pulling yields sharply lower, with the 10-year falling below 4% for the first time since October 2024.[7] Hours after the tariffs went into effect, the Treasury bond market sold off, reflecting concerns that inflation could increase, and foreigners might reduce demand for US assets. [8] Instead of behaving like a safer long-term investment, bond prices dropped as yields for long-term bonds maturing over 30 years rose above 5%, a 2-year high. [9] The increase in 30-year yields of 0.482 percentage points represented its largest weekly increase since 1987.[10]

Bonds represent loans investors make, typically to governments and corporations. A major bond sell-off sounds the alarm for any government, because it drives up interest rates and means governments must pay more to borrow money. [11], [12] It would also hinder the administration’s tax cut plan, making it essentially impossible to achieve without skyrocketing the budget deficit.[13]

The bond market selloff made its mark. A mere 13 hours after tariffs went into effect, President Trump announced a 90-day tariff pause, citing the “tricky” bond market. [14]

Source: https://www.bloomberg.com/news/articles/2025-04-30/stocks-tumble-at-open-as-weak-economic-data-dents-confidence

Tariff Impact

Treasury Secretary Scott Bessent publicly warned nations around the world against retaliating, saying that the levels announced on April 2^nd would be the upper limit as long as no one retaliated.

However, China hit back with 125% tariffs on US goods, as the administration hiked tariffs on Chinese imports to 145% (on top of existing tariffs). This has led to a roughly 40% drop in US-bound cargo from China since early April.[15] These high levels of tariffs are largely considered unsustainable long-term.

Source: https://www.bloomberg.com/news/articles/2025-04-30/us-economy-contracts-for-first-time-since-2022-on-imports-surge?srnd=homepage-americas

US retail sales surged 1.4% in March, the largest jump in two years, as consumers frontloaded purchases before tariffs were to go in effect.[16] This data captured spending before the April 2^nd round of tariffs was announced. Driven by a rush by companies to import goods ahead of the introduction of tariffs, the first estimate for Q1 GDP dropped an annualized 0.3%, below the average growth of around 3% of the past two years.[17]

Nevertheless, the underlying numbers in the Gross Domestic Product (GDP) report suggest key drivers of the economy are still holding up.[18] Consumer spending, which accounts for two thirds of GDP, rose by 1.8%.[19]  While that was the weakest reading since mid-2023, it still came in ahead of economist forecasts.[20] The strongest growth in business equipment purchases since the pandemic also reflected continued demand.[21]

Throughout the month, relief came in bits in pieces via exemptions on semiconductors, computers, and other electronics, though officials also mentioned they planned to launch specific duties for semiconductors.[22]

Although the administration also eased some auto tariffs and added some reimbursements for domestic producers, a 25% tariff on imported cars and auto parts remains.[23]  Car makers will likely have to pass on tariff costs, remove features from cars, or pull affordable models from sale altogether.[24] This comes at a time when the average sticker price of a new passenger vehicle is already up 22% over the last five years.[25]

Earnings Season Kicks Off

Analysts have been scaling back full-year 2025 S&P 500 expected earnings growth to about 9% from 14% in January, which could see further cuts with prolonged uncertainty.[26] A growing number of companies have declined to offer forward guidance for the remainder of the year.[27]

Despite broader uncertainty, corporate earnings have delivered a dose of relief. With 72% of companies in the S&P 500 reporting Q1 results so far, 76% have beaten estimates, which is below the 5-year average of 77%, yet above the 10-year average of 75%.[28] Growth in sectors like health care, communication services, IT, and utilities is boosting chances that the first quarter will provide the 7^th consecutive quarter of year-on-year earnings growth. [29]

Looking Ahead

A de minimus exemption allowing goods worth under $800 to arrive tax-free has now expired, which will impact more than 80% of total U.S. e-commerce shipments.[30] After the 90-day pause on higher tariffs, July 8^th is the next deadline where markets will be looking for signs of trade deals. At the moment, 15-18 “important trading relationships” are subjects of negotiations. [31]

Notably absent from the original list was China. In prior conversations, U.S. Secretary of the Treasury Scott Bessent noted that China sells five times more to the U.S. than we sell to them, saying that it’s up to Beijing to take the first step to de-escalate.[32] Meanwhile, China’s Commerce Ministry asked the U.S. to show its sincerity by dropping the unilateral tariffs as a condition to negotiations.[33]

China is quietly exempting nearly a quarter of imports from the U.S, which mirrors the U.S. exemptions for smartphones and electronics that cover around 22% of U.S. imports from China last year. [34] At the time of the release of this newsletter, the tariff relationship with China has again shifted, with the announcement that U.S. will cut the “de minimis” tariff for low-value shipments from China to as low as 30%, according to a White House executive order and industry experts.[35] The ongoing trade and tariff discussion will no doubt continue to be a focal point moving forward, and it’s anyone’s guess as to how it will pan out over the days and weeks to come.

Periods of heightened volatility can be uncomfortable—but they can also present opportunities. For disciplined investors, they offer a chance to assess your overall allocation, stress test your portfolios and confirm that it reflects your long-term objectives. We’re here to help you navigate that process thoughtfully and strategically.

With graduation season and warm summer months on the horizon, now is the perfect time to share any updates and new goals. We strive to remain a steady hand through the current market and geopolitical volatility and are poised to help however possible as your financial and personal lives evolve. Please reach out to our Admin team to schedule a full review or a simple catch-up meeting as needed!

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