The Week in Review: April 14, 2025
Stocks End Volatile Week Higher but Certainty in Short Supply
On Wednesday, President Trump put reciprocal tariffs on hold for 90 days (except China), fueling the third-best daily gain (9.5%) in the S&P 500 Index since WWII, according to Bloomberg.
On Thursday, the president said the pause could be extended. However, a return to market calm has proven elusive. A 10% tariff remains in place on nearly all countries, while steel and aluminum face tariffs of 25%—the same applies to autos outside the US-Mexico-Canada (USMCA) trade agreement, according to Reuters.
Additionally, the White House confirmed that tariffs on China are set at 145%. Economic uncertainty is high, keeping investors on edge.
Figure 1 illustrates recent declines. The short sell-off in 2020 was the most intense, while the 2022 bear market, associated with high inflation and rapid rate hikes, was more measured.
Due to significant economic and policy uncertainty, investors have shied away from stocks, repricing assets amid a darker economic outlook, i.e., expectations for higher inflation and a sluggish economy (or worse, a possible recession).
Meanwhile, problems are bubbling to the surface in the Treasury market. On Friday, April 4, the yield on the 10-year Treasury hit an intraday low of 3.86% (CNBC). It closed a week later at 4.48%.
Historically, economic and stock market tremors encourage investors to buy Treasury bonds, which pushes yields down. Treasuries have been viewed as a safe-haven asset, as we saw in the 2008 financial crisis and the pandemic lockdown.
That’s not happening today. Why?
Markets are concerned about inflation, which can drive yields higher. Foreign holders of U.S. Treasury bonds may be selling. Hedge funds could also be selling bonds as they unwind leveraged positions to raise cash.
Furthermore, there may be some unease over any upending of the global order that has been in place since the end of WWII, if that is occurring. Historically, the dollar has risen when global markets have been shaken. Today, the dollar has lost value amid outflows into other currencies.
Today’s situation is fluid. As we saw on Wednesday, a headline can move stocks. Investors seek clarity, including a resolution of trade issues the market doesn’t perceive as harmful.
Alternatively, they carefully monitor any shift to a new trade equilibrium, which has been challenging thus far.
Market Summary
TWO FOR THE ROAD
Markets don’t exactly have a consistent reaction to tariffs. After the 30% steel tariffs in 2002, the S&P dropped -11% in three months and -19% over six… but during the 2014–16 global trade slowdown, the market rose +2% and +6% over those same timeframes – and in 2018, when the U.S. - China trade war kicked off, stocks climbed +3% and +7%. We’ll find out what the three and six-month numbers look like this time around, but the bottom line? Tariffs make headlines, but history shows the market’s response isn’t always predictable. Lowry Research, March 31, 2025
Volatility isn’t unusual – it’s the cost of admission. On average, the S&P 500 sees seven 3% dips, three-and-a-half 5% pullbacks, and one 10% correction per year, plus a 15% drop about every 18 months. Said another way, if you have a $1 million retirement portfolio, that’s the equivalent of losing (and recovering) -$30,000 multiple times a year, -$50,000 a few more, -$100,000 once annually, and -$150,000 every year-and-a-half. In other words, this is what “normal” looks like, having nothing to do with bear markets. - Ryan Detrick, March 4, 2025
Please do not hesitate to contact me with any questions or concerns.
I hope you have a great week!
Bill Stordahl, CFP®
Managing Director
Stordahl Capital Management
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