Weekly Market Report: April 4th, 2025
Market Anecdotes
• The Trump Shock of 2025, due to announced tariffs on U.S. imports of nearly 22% were well beyond what markets were expecting, translated to a top 20 worst two days in market history.
• The unexpected and confusing logic/math from the CEA and subsequent retaliation from China tanked global equity markets and sent both bond yields and the USD sharply lower.
• Complicating things for the Fed, despite dire consumer and business confidence, the economy has yet to register a material slowdown as evidenced by the strong March jobs report and slowing but respectable GDP growth projections with Atlanta Fed at -0.8% and NY Fed at 2.6%.
• Fiscal policy narratives now include a potential tax hike on the top bracket to help fund TCJA extension and other promised tax cuts alongside skepticism on the current reconciliation deal.
• The legality and constitutionality of one single person making the decision to raise taxes is highly suspect. Expect swift and forceful challenges to the invocation of the IEEPA of 1977.
• The Cliff Clavin note of the week illustrates U.S. population migration from large cities to smaller/mid sized and from cold weather to warm is alive and well.
Bullish Asset Allocation Narratives
- Oversold conditions are present across U.S. equity markets, presenting a compelling buy the dip
opportunity at some point soon. - An expected and more material slowdown in growth has yet to materialize (corporate fundamentals, labor market, consumption) and the private sector is relatively healthy and not facing significant structural imbalances.
- Market volatility, poor POTUS approval ratings, or concessions will ultimately trigger trade deals.
- Stagflationary tariff policies are unlikely to persist in the intermediate or long term after which fiscal stimulus (tax cuts) and deregulation may well resume the bullish narrative.
- Depending on relative weights of tariff related inflation and tariff related sentiment/demand destruction, we may see a more rapid removal of restrictive monetary policy.
- The bond market, as evidenced by sharply falling interest rates, seems far more concerned with a potential slowdown in growth than with fiscal deficits, US debt ceiling, and unfunded tax cuts which lowers the cost of capital and smoothes the path to passing fiscal stimulus legislation.
- Fiscal stimulus and structural reform are set to boost growth in Europe, Germany in particular.
- Constructive corporate fundamentals which ultimately drive markets, remain sound.
- AI efficiencies are in the early innings of impacting productivity, inflation, and growth.
Bearish Asset Allocation Narratives
- Risk aversion is likely to persist until heightened uncertainty surrounding trade policy, monetary policy, and fiscal policy begins to clear up.
- A continuation of adverse trade policy and retaliation would accelerate deterioration in sentiment and economic growth, representing a key risk to markets and the overall economy.
- A slowing labor market and negative business and consumer sentiment have the potential to lead to a self fulfilling decline in business spending and hiring as well as personal consumption.