April 26, 2025 Market Update

Equities trading remained choppy last week, with investors quick to react to political developments and shifting expectations around tariffs and the economic outlook.  Large cap stocks benefited from better-than-expected earnings results and a temporary easing of trade tensions, which helped improve sentiment, particularly in growth-oriented sectors. 

The bond market remained volatile but was somewhat more stable than in recent weeks.  Long-term Treasury yields moved lower early in the week as concerns about slowing growth dominated investor thinking.  However, yields reversed course again late in the week amid renewed fiscal concerns and signs of persistent inflationary pressures. 

Markets appear to have stabilized for now, but underlying tensions remain.  With political developments and policy decisions continuing to drive sentiment, Mr. Market is likely awaiting clearer signals on trade, growth, and inflation before going on the offensive again.

After a prolonged period of solid performance, questions are surfacing about whether the U.S. economy may be heading toward a slowdown.  Recent economic reports have shown some softening in consumer spending, job creation, and the housing market.  In addition, the Conference Board’s Leading Economic Index has been declining, and regional manufacturing surveys point to a slowdown in industrial activity.

While these indicators suggest the economy may be losing some steam, it’s still premature to say a full-blown contraction is looming.  The labor market remains relatively healthy, consumer balance sheets are not overly strained, and bank balance sheets continue to appear well-capitalized and stable, which reduces the risk of a financial shock.  In addition, regional economic surveys, such as Dallas Fed’s Weekly Economic Index through April 19 continues to reflect a moderate pace of economic activity.

In addition, the options market is now pricing in three quarter-point rate cuts starting as early as June, which could provide a boost to growth if they materialize.  Likewise, a moderation in the Administration’s tariff policies could do wonders for investor confidence.  Either development could spark a sharp market rebound.

In short, the path forward will depend heavily on the Trump Administration’s tariff policies and the Federal Reserve’s response to them.  Tariff hikes have raised concerns about their potential impact on U.S. manufacturers’ supply chains, America’s standing in the global economy, and inflation.  At the same time, the lagged impact of prior Fed rate hikes is starting to be felt.  Credit conditions have tightened, and corporate earnings calls increasingly mention margin pressures and cautious outlooks.

That said, the data that has been posted so far suggests it’s more likely that the economy is entering a slower growth phase rather than a sharp downturn.  But that outlook assumes neither the Fed nor the Trump Administration implements policies that further damage what is becoming an increasingly fragile economic picture.

That’s all for now.  Have a great weekend and invest wisely, my friends.