Weekend Update #225
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In a whirlwind of tariff announcements this week, equities bounced between panic and euphoria as market participants attempted to price financial risks due to tariff implementation. On Monday, the S&P 500 reached a 19% drawdown since the market’s peak on February 19th, putting the index on the edge of bear market territory. Two days later, the S&P 500 posted its best single-day performance since 2009, rising 9.5% on Wednesday as President Trump announced a 90-day pause on reciprocal tariffs. Ultimately, the S&P 500 posted its best weekly performance since November 2023 as the scope of additional tariffs seemed to be narrowed to the escalating trade war with China, giving time for negotiations to take place between the U.S. and other countries.
Monday, 4/7: President Trump threatens an additional 50% increase in tariffs on China unless they lift tariffs on the U.S., on top of the initial 54% rate announced on April 2nd
Tuesday, 4/8: China fails to meet President Trump’s deadline to withdraw tariffs; President Trump declares 104% tariffs are to be imposed on China
Wednesday, 4/9: China raises its tariff rate on the U.S. to 84%, up from the previously stated 34% rate; U.S. raises its tariff rate on China to 125%; EU approves tariffs on $23 billion of U.S. goods; President Trump announces a 90-day pause on reciprocal tariffs for all countries that did not retaliate
Thursday, 4/10: U.S. clarifies that Wednesday’s decision raises its tariff rate on China to 145%; EU announces 90-day pause on U.S. tariff measures
Friday, 4/11: China announces its tariff rate on the U.S. will rise to 125% beginning on April 12th
With such rapid changes being priced in the market, the CBOE Volatility Index surpassed 57 this week, reaching a high since March 2020. As investors searched for safe havens amid the uncertainty, the price of gold surpassed $3,200 per ounce on Friday for a new all-time high.
As the market expects significant inflationary impacts to follow April’s tariff announcements, March’s cooler-than-expected CPI and PPI reports were largely viewed as out-of-date indicators. Both showed that inflation slowed significantly in March, with CPI falling -0.1% month-over-month and rising 2.4% year-over-year — the lowest pace since February 2021. PPI similarly posted a -0.4% month-over-month decline and rose 2.7% year-over-year, coming in cooler than economists’ estimates. Survey data this week included NFIB Small Business Optimism, which declined the most since June 2022, driven by deteriorating economic expectations and earnings pressure. The preliminary April 2025 Consumer Sentiment survey showed consumer sentiment fell to the second-lowest monthly reading in its history, with inflation expectations at a high since 1981 and unemployment expectations at a high since 2009.
J.P. Morgan, Morgan Stanley, Wells Fargo, and BNY Mellon kicked off the Q1 2025 earnings season on Friday. Investors looked to these results and commentary from management teams for better insight into the economic picture and downside risk. Largely, these banks pointed to significant uncertainty around fiscal and monetary policy as well as the economic scenarios that could occur throughout 2025. It was clear that stability in the underlying bank businesses broadly continued throughout Q1 into the early parts of April, but banks are also preparing for stress scenarios — such as being targeted by retaliatory tariffs or stretched businesses/consumers failing to repay their loans/debt. Despite the equity market bounce and initial earnings commentary, uncertainty lingers as investors want to gain more clarity on tariffs, inflation, and employment trends.
Friday’s Close (Weekly Performance)
S&P 500 5,363.36 (+5.70%)
Nasdaq 16,724.46 (+7.29%)
Dow Jones 40,212.71 (+4.95%)
Thank you Blue Room Senior Analyst JARED FENLEY.
Consumer sentiment fell for the fourth straight month, plunging 11% from March to 50.8 in April. This decline was, like last month’s, pervasive and unanimous across age, income, education, geographic region, and political affiliation.
Sentiment has now lost more than 30% since December 2024 amid growing worries about trade war developments that have oscillated over the course of the year.
Consumers report multiple warning signs that raise the risk of recession: expectations for business conditions, personal finances, incomes, inflation, and labor markets all continued to deteriorate this month.
The share of consumers expecting unemployment to rise in the year ahead increased for the fifth consecutive month and is now more than double the November 2024 reading and the highest since 2009. This lack of labor market confidence lies in sharp contrast to the past several years, when robust spending was supported primarily by strong labor markets and incomes.
*Note that interviews for this release were conducted between March 25 and April 8, closing prior to the April 9 tariff partial reversal.
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