Market Monitor | April 11, 2025 Update
Headlines and Highlights
- Global trade war intensifies: President Trump’s promised overhaul of the global trading system has turned into an all-out trade war. China, the main target of Trump’s harsh “reciprocal” tariffs, said Friday it will raise tariffs on American goods from 84% to 125% and vowed to “fight to the end.” The European Union, the world’s largest trading bloc, agreed on tough counter-measures to U.S. tariffs this week before putting them on hold to match Trump’s abrupt suspension of the additional U.S. levies. Trump’s tariffs still in place include a universal 10% tariff and a 145% levy on imports from China, setting up a tariff faceoff between the world’s two largest economies.
- Markets roiled by tariffs, uncertainty: Financial markets worldwide have been jolted by tariff uncertainty and worries about the impact on consumer prices, business investment and economic activity. The S&P 500 rose 1.8% Friday after the White House said it had 15 trade-deal offers from other countries on the table, capping one of its best weekly gains in years, 5.7%. But it remains down 4.4% in the April turmoil. International markets also gained this week, aided by a weakening dollar. The bond market remains volatile as yields have risen unexpectedly.
- Inflation cools by most since 2020: Consumer prices fell for the first time in five years last month, a welcome but likely short-lived drop in inflation toward the Federal Reserve’s 2% target. The 0.1% monthly decline in the Consumer Price Index in March dropped the annual inflation rate to 2.4% from 2.8%, with core inflation also slowing more than expected to 2.8%. Fed officials say that tariffs will likely slow growth and increase near-term inflation.
Chart of Interest
Our Views
- The global trade war has quickly escalated with tit-for-tat tariffs that cannot possibly be sustained at their current or threatened levels. It is impossible to estimate with any confidence how long the stand-off between the U.S. and its trading partners will last or how much damage will be or already has been inflicted on the global economy. We believe, however, that fast-tracked negotiations will help calm markets and allow cooler heads to prevail, based on comments and recent actions by the president.
- President Trump believes he is following through on his campaign promises regarding trade and tariffs. It is nonetheless a huge gamble with the global economy. His overriding goal seems to be taming China and making sure the U.S. can reassert itself over the growing power of the world’s second-largest economy. Baseline tariffs on other countries may remain at some level but we do not believe they are enough to derail the global economy, as China’s could.
- A recession is increasingly likely as a result of the consequences of tariffs. Recessions are not created equally. They vary in intensity. Should a recession occur this year, we believe it will be relatively shallow and short. We do not believe President Trump wants a severe recession, particularly with next year’s midterms in mind. His decision to suspend his latest round of tariffs for 90 days under pressure once both the bond and stock markets started rapidly deteriorating underscores the likelihood of further deals. His administration already has embarked on what The Wall Street Journal calls a “high-speed” effort to negotiate deals with more than 70 countries.
- Markets tend to react quickly to bad news or expectations of it, and sometimes overreact. Recoveries can come quickly as we saw this week on Wednesday with the S&P 500 up 9.5% (you read it correctly, that was the one-day performance). While we expect further volatility until there is more clarity on tariffs and an improved outlook, we are prepared to add to higher-risk assets if the decline in the S&P 500 reaches about 25% off its February 19th We certainly do not welcome a continuing downturn, but a drop to that level would provide an excellent long-term buying opportunity.
- Inflation will likely rise back above 3% as a result of tariffs, in our view. But the rise to that level should be temporary given both the Federal Reserve’s stated intention to remain cautious about lowering interest rates and a sharp decline in consumer sentiment as reported Friday by the University of Michigan, which likely signals a pullback in spending.
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