Monthly Market and Economic Update - April 2025

Current Market and Economic Conditions

• For April, the S&P 500 Index was down 0.68%, while the Bloomberg Barclays US Aggregate Bond Index was up 0.39% and the Bloomberg Barclays Municipal Bond Index was down 0.81%.¹
• The stock and bond market went on a wild ride during April as the “reciprocal” tariffs were first announced and then paused by the Trump Administration. The stock market response was severely negative as the level of the tariffs was more severe than expected. Once paused, the market responded more favorably.
• The Federal Reserve may have a conundrum on their hands as they may have to balance monetary policy action against the competing risks of potentially higher inflation with the possibility for slower economic growth.

Bond Market

• The bond market may have had a very chilling reaction to the significant change in trade policy. Historically, US Treasury bonds have been considered a safe haven in the global markets. Given the US dollar’s status as a global reserve currency, foreign banks, foreign countries and non-government organizations had traditionally held a significant quantity of US Treasury bonds. During the period following the announcement of the reciprocal tariffs but before they were paused, the global bond market sold off US Treasuries indicating displeasure with the severity of the trade policy changes. In the space of six trading days in mid-April, the yield on the 10-year Treasury rose from 4.0% to 4.5%. Following the announcement of the “pause,” the yields have dropped back to 4.2% by month end.
• A substantial rush of imports timed to avoid the potential impact of pending tariffs, overwhelmed US exports and caused the initial first quarter GDP report to show a negative number for the first time since 2022. During an appearance at the Economic Club of Chicago on April 16th, Fed Chairman Jerome Powell stated: “The level of the tariff increases announced so far is significantly larger than anticipated. The same is likely to be true of the economic effects, which will include higher inflation and slower growth.” Chairman Powell also noted: “We may find ourselves in the challenging scenario in which our dual-mandate goals (maximum employment and stable prices) are in tension. If that were to occur, we would consider how far the economy is from each goal, and the potentially different time horizons over which those respective gaps would be anticipated to close.”²
• If, due to higher tariffs, inflation spikes and the economy slows - a phenomenon known as “stagflation” - the Fed will be in a difficult situation as it will have to decide whether to stimulate the economy by lowering interest rates or fight inflation by keeping interest rates higher. As of April 30, 2025, the Fed Fund futures market is forecasting that the Fed may cut as soon as June and potentially cut the Fed Funds rate three times before the end of this year.³ The futures market is projecting a slowdown in the economy will likely take priority prompting action by the Fed. 
• For bond investors, the recent fall in interest rates has meant a rise in bond values and a positive total return year to date. Also, due to the higher relative bond yields any change in interest rates whether up or down will have less impact to bond values than when the starting yields were much lower a few years ago.

Stock Market

• The stock market, as measured by the S&P 500 index, is still in negative territory down 3.5% year-to-date.⁴ It has almost climbed out of the downturn when the market violently responded to the tariff announcement. The current pause has provided a window of opportunities for certain industries and for the market in general. A “pause for longer” than the 90 days announced, would be very welcomed by the markets.
• One very surprising bright spot for the equity market thus far in 2025 are international stocks. The MSCI EAFE International Index is up 13.4% year-to-date.⁵ This may seem counterintuitive in the face of current trade negotiations. However, international stocks are still trading at a 33% price-earnings discount to US stocks.⁶ It does show that the market looks for opportunities to buy stocks cheap during stressful times and that diversification is an important factor for long-term investors. Market leadership changes quickly and without much notice. Diversification means that investors are properly positioned when this happens. 
• Investors typically shy away from uncertainty, especially when stock prices are elevated. Historically, markets often experience heightened volatility and weaker performance during the first 18 months of a new administration—regardless of which party is in power—as investors adjust to changes in fiscal policy. Expectations for the new administration have included pro-growth initiatives such as deregulation, tax cuts, and stable energy prices and interest rates. However, the early focus on implementing tariffs has sparked market concerns, as these measures may dampen short-term economic growth and contribute to inflationary pressures. If the administration shifts its focus back toward growth-oriented policies, the market could regain its footing. For now, both investors and the Federal Reserve are adopting a cautious stance, watching for signs of stagflation—slower growth combined with rising inflation. In times of market turbulence, it's important for investors to maintain a long-term perspective and consider using short-term volatility as an opportunity to rebalance portfolios in line with their risk tolerance.

Portfolio Management

• The allocation for each investor should be diversified between growth and safety based on their own tolerance for risk in the short run and their desire for growth in their investments in the long run. Determining the appropriate asset allocation and risk-reward trade-off is the most important decision for investors.  Once determined, staying invested during periods of uncertainty and rebalancing back to the selected risk profile can help investors achieve their long-term goals.

Please contact your Advisor if you have questions or concerns.