Weekly Newsletter: April 14, 2025
How I Learned to Stop Worrying and Love the Tariffs is unlikely to be the next movie satire on the current administration. If there is any takeaway from the past two weeks, it is to tune out and drop out of the daily news flow. One day it was announced there would be no reduction in tariffs; the next was an elimination of the reciprocal tariffs and a 90-day pause. Markets have been all over the map, as markets traded down by 3%+ only to finish higher one day, then rise by 3%+ the next day and finish lower. THAT preceded an 8%+ one-day gain when the tariff pause button was hit. It is hard to keep hair from greying, let alone on one’s noggin. Away from the mania, the economic data was good, as inflation reports showed a slowing in inflation and an outright decline in producer prices. Most economic reports as well as earnings data over the next month will be ignored as it will be “pre-tariff“ data. Trying to guess the next direction for stocks, interest rates, the economy, and tariffs is a fool’s errand. However, know that reality is never as bad, nor as good, as the various pundits would have you believe.
In another dimension, the economic data last week might have spurred a rally in both stocks and bonds. First, the consumer price index was a bit better than expected, and the year-over-year figure continues to slide slowly toward the 2% Fed target. Next up were producer prices. Helped by lower energy prices, they were well below estimates. Combined with a healthy labor market, it indicates the economy is/was on good footing ahead of the tariff announcement. Sentiment readings from consumers, investors, and businesses remain low or have suffered large drops. But a quick peek at restaurants, airports, and theaters indicate a consumer willing to spend. Businesses will struggle with how to handle tariffs as they begin to impact in the weeks ahead. Investors, roiled by the high daily swings, are seeking shelter wherever they can find it. Listening to earnings calls may be instructive this quarter on how companies are handling the uncertainty. More data on the consumer hits this week as retail sales are reported.
They are expected to rebound from the low February reading, a potential (still) Christmas hangover report. One other report that is likely to garner attention is import prices. This is not likely to show the impact of tariff announcements just yet, but it could provide a baseline for the future figures as they are reported later this year. Normally a port in the storm, the bond market has been roiled as well, with yields jumping the most in a week since 1987 on the 30-year bond. High yield and corporate bonds were hurt as rate differences increased between corporates and treasuries. Investors holding individual bonds can wait out the turmoil until they get face value at maturity. Those in various bond funds/ETFs might have a longer wait to get back to even. The expectations for a rate cut have increased over the last two weeks and may provide some respite for income investors. The bond model, which has been generally positive this year, meaning yields could generally be declining, abruptly turned negative. Like the equity markets, yields have been very volatile and could turn back “positive” as markets calm down. That said, the huge jump in yields could weigh on equities as investor may decide to move toward the (now) higher yields provided by bonds.
Stay calm and carry on may have been the right mantra for the past couple of weeks. The world was ending two weeks ago, and last week provided a glimmer of hope. The most beaten-down portions of the markets early in April saw the biggest jumps last week, with technology leading the way. The question is whether this period is similar to the Covid period, when markets dropped quickly, only to recover quickly. The self-imposed market decline over the past two weeks and the potential for an unwinding of some/most/all(?) of the tariffs remain a possibility. The lack of clarity on the goals and objectives as well as the timeframe under which they are to occur, could cloud the investment horizon for some time. But, just as much a possibility is the unwind of the tariffs with little economic damage, and the market reaction could be just as forceful upwards. International investing is (finally!) proving to be rewarding as the dollar struggles. International markets are and have been for the past 5+ years, inexpensive compared to the US. however, the relatively strong dollar and “US exceptionalism “ proved too much for overseas holdings to compete with US returns. Maybe the shift towards nationalism can provide global investors with a better-than-average return vs. recent historical trends.
Economic data is likely to take a back seat to the ongoing tariff discussions.
The opinions expressed in the Investment Newsletter are those of the author and are based upon information that is believed to be accurate and reliable but are opinions and do not constitute a guarantee of present or future financial market conditions.