April 2025 Newsletter

Market Commentary

The early months of 2025 have presented a complex economic landscape, marked by significant policy shifts, market volatility, and evolving economic indicators. US GDP growth was estimated to be around 1.9% for the first quarter based on expectations of tax cuts, regulatory easing and increased business confidence.  However, the potential impact of new tariffs recently announced has introduced downside risk to this outlook. The US labor market has continued to show strength with new job additions significantly beating the expectations despite policy uncertainty.  Inflation expectations have risen following the tariff announcements as well.

On April 2, a series of sweeping tariffs were announced, marking a significant shift in U.S. trade policy.  A universal 10% tariff was imposed on all imported goods, with additional “reciprocal tariffs” targeting specific countries that the administration felt had unfair trade practices.  For instance, China faced a combined rate of 54%, which included a new 34% rate on top of the already existing 20%.  The European Union and Japan were subjected to new tariffs of 20% and 24% respectively.  Southeast Asian nations, including Vietnam and Cambodia faced tariffs nearing 50%.  The administration emphasized that these tariffs are aimed to revitalize the manufacturing sectors within the United States, reduce trade deficits, and generate additional revenue for the federal government.  This announcement provoked strong reactions from global leaders.  Canada’s Prime Minister announced retaliatory tariffs, along with China, Japan and the European Union.  These responses indicated that there is potential for escalating trade tensions and the risk of a global trade war.  

The financial markets have had extreme reactions as well. The S&P 500 reached an all time high on February 19th of 6,147 but has since fallen close to 19% to just under 5,000.  The Dow Jones Industrial Average has decreased 15.7% from its level in February and the technology heavy Nasdaq Composite has fallen over 24% from its high of the year.  The VIX, which is the ticker symbol for the Chicago Board Option’s Exchange volatility index, has increased 204% this year, indicating investors are anticipating some turbulence. 

Interest rates have been steadily falling in the first three months of the year as demand for less risky assets rises.  The yield on the U.S. 2 Year Treasury  fell .56% from the beginning of the year to 3.68% and the yield on the U.S. 10 Year Treasury fell below 4% but quickly rebounded to 4.241% on April 8th. 

Gold, an asset that has historically been purchased as a hedge against volatility, had risen to an all time high of  $3,167 per ounce before falling to $2,977. Oil, on the other hand, has fallen to $58 a barrel, its lowest level since February of 2021.  This can be attributed to the economic implications of the escalating trade conflicts, contributing to a bearish outlook on demand and recession fears.

As time goes on, we will see how the tariff situation plays out. Until then, uncertainty and volatility will remain within financial markets as different countries react to new announcements.