Tarrified!

May 7, 2025

Stocks sold off in April, as financial markets faced mounting challenges in the wake of “Liberation Day.” Equities were punished and ultimately ended lower for the month, but closed well off the worst levels seen in the tumultuous first half. Market anxiety was driven primarily by the announcement of heavy-handed, “reciprocal” tariffs which imposed a baseline 10% tax on imports from all countries, with select countries like China penalized even heavier. Stock markets tanked swiftly and uniformly after the announcement, with growth companies and “Magnificent 7” areas hit hardest while defensive sectors held up better. Nonetheless, after the April 9th announcement of a 90-day tariff pause, the S&P500 posted its best day since October 2008 and rallied hard in the subsequent weeks, ending the month of April down just a tad at -0.7%. Miraculously, the NASDAQ Composite posted a positive return for the month, after being down double digits just a few short weeks ago. He who limps is still walking.

This incredible about-face was the result of de-escalation and improvements on the trade policy front, as messaging from the White House suggested that deals with Japan and India were nearly complete. Simultaneously, rumors of Fed Chair Powell being replaced by President Trump were quelled, which gave extra wind to the backs of the equity market sails. Corporate earnings, which have taken a back seat to geopolitical headlines of late, have come in strong thus far, with both Microsoft and Meta (two of the darling “Magnificent 7”) reporting impressive financial results and encouraging forward guidance. Stability and continued growth in the biggest and most dominant American companies helped to alleviate investor concerns and contribute to the strong rally we saw to close the month.

Turning our attention to the bond market, it was a month where safety and conservatism mattered, as the risk-off move in equities was mirrored in many fixed income sectors. Corporate and municipal bonds saw weakness in the face of yield back-ups, but higher quality and shorter maturities were able to weather the storm. This repricing was a result of the aforementioned tariffs, and “riskier” segments of the bond market felt a similar pain that their equity counterparts were enduring. Still, fixed income as an asset class held up to its reputation as a diversifier and volatility dampener, with the Aggregate Index gaining 0.39% during the month, bringing its yearly advance to a respectable 3.56%. Bonds are back, as they say.

In terms of hard and soft economics, the data were more mixed. The initial reading of Q1 GDP showed a surprising slowdown, falling 0.3% on an annualized basis to its lowest level in three years. It is worth noting, however, that the decline was driven primarily by high frontloaded imports ahead of potential future tariffs, a dynamic that we think (and hope) will be temporary. Consumer sentiment numbers also came in light, dropping to its lowest level in nearly three years. Happily, not all of the monthly reports were bearish, as both CPI (price inflation) and PPI (producer inflation) were cooler than anticipated, assuaging much of the lingering fears that inflation would rear its head yet again. All told, while recent economic data have been mixed, it does not appear that the economy is at high risk of a recession in the near term. Encouraging.

April was a wild month in capital markets, with record volatility and extreme moves in many markets. Stocks moved from a scary -14% to an inspiring +15% from the lows before settling. Volatility has entered the chat. Still, we lean on and benefit from the pillars of our investment process: a sound plan based on fundamentals and common sense that is adhered to across all market environments. This necessarily entails diversification across a broad spectrum of asset classes, a disciplined portfolio management process, and a long-term view. Investment management lives in the world of the unknowns, which is what makes it so challenging (and so rewarding!). But given the unknown range of outcomes, through a robust and rigorous portfolio management process, we hope to provide a successful experience for our clients.

We wish you all the very best as this spring season of renewal unfolds. We thank you genuinely for your trust and support.

Sincerely,
Jason D. Edinger
Chief Investment Officer
Boston Wealth Strategies