By Rick Schwerd | April 18, 2025
Our investment team remains committed to sharing updates and market insights to keep you informed. Please look for our next update on May 2.
Is the Dust Settling?
After a couple of historically volatile weeks to start April, markets have been a bit more subdued this holiday-shortened trading week. Equity markets do remain edgy, as we witnessed Wednesday when Federal Reserve Chairman Jerome Powell’s comments at the Economic Club of Chicago sent markets lower. Powell warned Wednesday that the Fed could face a difficult trade-off as tariffs raise prices and weaken the economy. However, volatility has dropped significantly from where we were early last week.
The bond market has also found some stability after the concerning rise in yields, which we discussed last week. The benchmark 10-Year U.S. Treasury yield has been hovering right around 4.30 percent this week after spiking nearly three-quarters-of-a-percent to a high of 4.59 percent last Friday. Usually when we see volatility in equity markets, Treasury yields fall when investors buy them as a safe haven investment. The fact that the reverse occurred last week was unsettling. This week’s stabilization in rates was a relief, but we will continue to monitor for further signs of stress.
Strong Reports for Economic Data
Though tariffs have been the focal point of market news, it is important to note that the economic data of late has been particularly good. Last week’s Consumer Price Index (CPI) and Producer Price Index (PPI) data was better than expected and showed a significant improvement in March. The weekly initial jobless claims and continuing claims remain in a tight range at low levels. This week’s March retail sales data showed robust growth in both headline and ex-autos and fuel sales. Anecdotally, in their earnings report this week, American Express noted that customer spending “has been untouched by the recent uncertainty” and remains strong.
Tariff Situation
It’s been a week since the President announced the 90-day pause in reciprocal tariffs on all countries outside of China. The administration’s stated goal was to negotiate “90 deals in 90 days” with trading partners. No deals have been announced at the time of writing this and it remains to be seen what the deals will look like. Generally, individual trade deals take significant time — up to years — to negotiate and get ratified. If the administration is looking solely for relatively minor concessions or commitments from trading partners to avoid the reciprocal tariffs, we would expect some deals to be announced soon.
Regarding China, it is hard to imagine that the current extreme tariffs on both sides will remain in effect for long, given China is our third largest trading partner. However, there has been little movement on either side so far. We are likely to see higher costs for products soon, which will increase inflation. The question is how much and if it will be a one-time increase.
Markets at a Crossroads
This remains a very difficult market to predict. On one hand, we could be staring at an economic recession in the near future resulting in further market losses. On the other, we may have already seen the market lows, and with all the cash on the sidelines and extreme negative sentiment, equities are sitting on a coiled spring waiting for a positive catalyst.
Currently, the economy is in good shape. Recent inflation data has been favorable, retail sales have been strong, and the labor market remains solid. Given these factors, if we do get some resolution to the trade wars we will most likely avoid recession. Last week's market lows are likely to hold and markets are poised to rebound in the event of a resolution. However, the longer uncertainty lasts with prospects for higher tariffs growing, the more the market will continue to be impacted and the weaker the economy is likely to get. If we are on our way to a recession, last week’s lows will likely not hold, and we could see a further leg down.
First Quarter Earnings Season Continues
Several large banks kicked off the first quarter earnings season Friday with positive results. Next week, Amazon, Tesla, Alphabet (Google), Procter & Gamble and scores of other companies are set to announce. Results are expected to be good, but the future guidance, given all the uncertainty, will be closely monitored.
As always, if you have any questions or concerns regarding markets or your financial planning needs, please reach out to us at (518) 415-4401.
About the Author: With almost three decades of financial industry experience, Rick serves as a Senior Investment Officer at Arrow Bank, formerly named Saratoga National Bank. He oversees individual and corporate retirement plans, personal trusts, investment management accounts, foundations and not-for-profit relationships.