April 2025 Market Update
April was a turbulent and volatile month for all U.S. financial markets. Stocks were mostly down as investors grappled with significant uncertainty around U.S. trade policy and the potential repercussions for economic growth, inflation, and corporate profit margins. Despite considerable volatility and an acceleration in selling pressure resulting in a ~19% decline from February’s all-time S&P 500 high, the benchmark index recovered to finish the month off just 0.76% and down 4.92% this year. While the Dow Jones Industrial Average suffered a loss of 3.17% in April, the Nasdaq Composite gained 0.85%. Most Technology-oriented companies certainly need to manage supply chain and tariff issues of their own but generally fared better than names considered to be more exposed in a possibly prolonged trade war and consumer spending slowdown. As a result, the “average stock” underperformed the broader market in April, reversing the expansion of market breadth we have seen thus far in 2025. Elsewhere, U.S. Government Bond yields also experienced significant volatility throughout April before ending the month modestly lower (and prices higher), providing diversified investors with some ballast against equity declines.
President Trump announced his much-anticipated reciprocal tariffs on April 2nd. The size and scope of the new policy proved much more severe than investors and analysts had expected, which triggered indiscriminate selling across asset classes (including stocks, bonds, oil, and the U.S. Dollar) and a ~15% decline for the S&P 500 over just three days! As with multiple significant news developments over the years, the degree of market reaction is typically directly related to the delta versus consensus forecasts. It is also true that extreme investor sentiment readings in either direction can set the table for equally powerful market moves in the other direction. The sour mood was so pervasive that the announcement a week later of a 90-day pause on reciprocal tariffs (excluding China) fueled one of the largest single day gains ever posted by the index. History has shown that news shocks of all kinds – 9/11, Covid, Lehman Brothers failing, etc. – often produce initial clusters of similarly tremendous volatility that tend to yield to more of a grinding, back-and-forth market pattern in subsequent weeks.
The back half of April brought further incrementally positive developments, including signals from Treasury Secretary Bessent and President Trump around eventual de-escalation with China and encouraging indications on other ongoing negotiations. Nevertheless, overall inconsistent messaging and continued uncertainty led numerous Wall Street strategists to cut their year-end S&P 500 price targets and boost forecasted odds of a recession in 2025.
The U.S. economy finds itself in a precarious spot. A defined impact from tariffs has not yet emerged in the “hard” economic data which show how much consumers are spending or whether companies are reducing payroll. On the other hand, “soft” data and survey results telling us how consumers and management teams feel about the future continued to deteriorate in April. It is likely too soon for backward looking data to reflect any of these impacts, and investors will need to monitor incoming data for any signs that the “hard” data is beginning to “catch down” to survey data. Further muddying the picture, consumers and businesses likely accelerated purchases ahead of expected price increases, which supports the data today but could lead to a serious hangover in coming months. As always, in an economy where consumption drives approximately 70% of GDP, whether labor markets can remain resilient will be a key driver of economic and market outcomes.
Investors tired of reading trade, cost-cutting, and policy-related headlines have welcomed first-quarter earnings reporting season and the opportunity to hear how companies are reading the current environment. Those reporting through April in aggregate exceeded consensus earnings growth expectations, but visibility into the rest of 2025 (and forward earnings guidance) has been severely hampered or at least tempered. Companies that can credibly quantify potential tariff impacts, and articulate cost-cutting and other mitigation strategies have more often been rewarded with positive market reactions this cycle. Note that the economy and earnings are the same. Having come into this volatile period with near record profit margins and rather healthy balance sheets, U.S. companies are likely better equipped to navigate a challenging environment than they have been in years.
While trade developments will undoubtedly be of great relevance to fundamentals over the next year or two, investors should be sure to understand the sustainable business case for any given company along with the secular, longer-term drivers supporting earnings growth. This is essential because relying on valuation metrics to determine the merits of an investment may require a much more “blunt knife” than usual. Price-to-earnings ratios which rely on near-term estimates as inputs may not be as reliable today given the earnings uncertainty. We also have little idea to what degree investors will feel increasingly more or less comfortable paying up for potential future earnings (whether valuation multiples will expand or contract). In short, knowing companies inside and out, and being able to separate external headwinds from a structural ability to generate cash flows is crucial to maintaining conviction and making rational decisions amid volatile markets.
Most observers expect the economy and company earnings to slow down to some degree in the coming months. Given how stocks have typically functioned as leading economic indicators, the central question remains: to what extent has this expectation already been discounted in prices? One could argue that the ~19% drawdown earlier in April did price in a fair amount of deterioration, while the rally to close the month makes this less evident. As such, we need to be prepared for a wide range of potential outcomes. A reasonable base case scenario might be that the truth is somewhere in the middle – things are not as bad as they looked a few weeks ago and not as rosy as suggested by the consecutive positive stock market sessions to close the month. Meanwhile, historical stock market drawdowns associated with recessions have been much worse than what has been experienced so far in this cycle. Here at The Wise Investor Group, we will approach the coming weeks with a great deal of humility and will be prepared to manage risk where appropriate, while still leaving portfolios positioned for long-term success.
Lastly, the majority of what we hear from the financial media and clients tends to focus on the “why” behind market movements rather than the “what” or the “how.” Simply put, we care much less about the catalysts for a tough environment than the market behaviors and price discoveries that influence portfolio returns. Most of us here have been through multiple challenging markets over the past two to three decades, and while the circumstances each time are obviously different and nuanced, market patterns are remarkably consistent. We will continue to leverage our experience and do our best to help you stay on course to achieve your financial goals!
Any opinions are those of the author and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Past performance is not a guarantee of future results. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including asset allocation and diversification.
The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index representing 30 stock of companies maintained and reviewed by the editors of the Wall Street Journal. The NASDAQ composite is an unmanaged index of securities traded on the NASDAQ system.
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