Weekly Market Report: April 11th, 2025
Last week markets continued to absorb the “U.S. versus the world” tariff crisis, marking a new frenzied peak and also a temporary reprieve (by some measures). While the optics of the pause were well received at face value, the week ended with higher overall tariffs and a full blown trade war between the world’s two largest economies. Unfortunately for consumers, investors, and companies, the week produced no deals, no wins, and no visibility on a plan. Stock and bond markets continued to exude substantial volatility with global equities closing up 3% to 6% while the USD (-3.5%) and treasury bonds closed sharply lower.
Market Anecdotes
- Crazy gyrations in the bond market and the fear premium fed into a midweek decision to surrender to reality, announcing a 90 day pause (except for China) on the demolition day “reciprocal” tariffs sparking a torrential rally in equity markets. So, what’s in place today?
- Volatility and scope of this market dislocation is unprecedented with the world anxiously awaiting clarity and/or relief through diplomacy, legal/constitutional, fiscal, or monetary.
- The trade war is in full effect as both China and the EU announced retaliatory tariffs. POTUS responded to China’s retaliation with a return volley on Chinese imports, now totaling 125%.
- The Fed provided markets some much needed assurance that it stands ready to step in if needed to maintain market functioning and liquidity.
- FOMC meeting minutes released last week were unremarkable but comments regarding tariff impact on the inflation outlook including “heightened risks of unanchoring inflation expectations”, higher “hurdle to adjusting rates”, and higher inflation outlook are notable.
- First quarter earnings season kicked off on Friday with the Street looking for 7.3% YoY growth.
- Over the past couple of weeks where we’ve seen -11% in two days and +10% in one day, Cliff Clavin reminds investors the best move is no move as opposed to needing to get two moves right, both the sell and the buy.
Bullish Asset Allocation Narratives
- Capitulation levels became evident in bond markets last week while equity markets continue to look for
clarity and progress toward trade normalization. - An economic slowdown is widely expected as obstacles to global trade weigh on growth but the scale will be
determined by the duration of the structural imbalances. - The private sector (corporate, labor market, consumption) remains relatively healthy.
- 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 . - Fiscal stimulus and structural reform are set to boost growth in Europe, Germany in particular.
- 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 selffulfilling
decline in business spending and hiring as well as personal consumption.
This communication is provided for informational purposes only and is not an offer, recommendation or solicitation to buy or sell any security or other investment. This communication does not constitute, nor should it be regarded as, investment research or a research report, a securities or investment recommendation, nor does it provide information reasonably sufficient upon which to base an investment decision. Additional analysis of your or your client’s specific parameters would be required to make an investment decision. This communication is not based on the investment objectives, strategies, goals, financial circumstances, needs or risk tolerance of any client or portfolio and is not presented as suitable to any other particular client or portfolio.