Risk assets ‘risk off’!

April 8th, 2025

RECAPPING LAST WEEK

Risk assets plunged around the globe as larger than expected tariffs imposed by the U.S. along with retaliations by major trading partners such as China stoked recession fears. After a modest rally to begin the week, the S&P500 index tumbled nearly 5% on Thursday and another 6% on Friday, finishing 9% lower overall. The Nasdaq Composite sank 10% as technology stocks were hammered, while the Russell 2000 also lost 10%. The Cboe volatility index soared above 45—a level not seen since August—implying an expected daily move greater then 2.8% for the S&P500 index. Crude oil prices plummeted more than 9%, dragged down by fears of a global trade war along with OPEC’s surprising decision to increase oil output by a higher-than-expected 411,000barrels per day starting next month. Investors flocked to the safe-haven of fixed income investments, sending the 10-year U.S. Treasury yield below 4% for the first time since October.

The U.S. dollar fell sharply against other global currencies, reflecting concerns that a trade war could impact domestic growth more than other economies. In a speech Friday, Fed Chair Powell said he expects tariffs to raise inflation and slow economic growth, but indicated the FOMC won’t move on interest rates until the impacts are clearer. Turning to other economic news, U.S. job growth was stronger than expected in March, providing at least a temporary reprieve from the flood of negative data. Nonfarm payrolls increased by 228,000 with the unemployment rate ticking up only slightly to 4.2%. Layoffs surged last month and in the first quarter according to the Challenger report but have not shown up in the official labor market data as court cases contesting the firings are pending. The ISM manufacturing PMI slipped into contraction for the first time this year, registering a 49.0 reading in March. The prices paid index jumped to the highest level in nearly three years, and survey participants indicated much uncertainty. Growth in the services sector stalled as the ISM’s measure of employment contracted for the first time in six months.

Overseas, Europe and other developed markets gave up most of their gains for the year. The MSCI EAFE index sank more than 7% as the realities of a potential trade war set in. Inflation in the Eurozone edged lower in March, lifting expectations for another rate cut at the next central bank meeting later this month. The Reserve Bank of Australia opted to keep interest rates unchanged and wait for upcoming inflation and labor market data before committing to future rate cuts. Finally, China’s manufacturing and services sector activity showed promise last month, according to the official government and Caixin PMI surveys. Rising trends in new orders and employment may have represented temporary lifts ahead of last week’s tariff news.

THE WEEK AHEAD

The fallout from tariff announcements and responses from trading partners will continue to be top of mind, while investors also consider fresh U.S. inflation data. The tariffs significantly increase downside risk to U.S. economic growth since they generally focus on items that affect a broad swath of consumer spending.

On Thursday, March’s CPI figures are expected to show a slight decrease from the prior reading, but last week’s PMI reading revealed worrisome inflationary trends in U.S. manufacturing prices. Minutes from last month’s FOMC meeting emerge Wednesday, but they may not hold much relevance given last week’s developments. More attention will likely be focused on what FOMC members have to say in their speaking engagements this week. Auctions for 10- and 30-year Treasuries will be closely monitored for any changes in demand, especially from foreign buyers.

Friday’s preliminary consumer sentiment reading for April will include updated inflation expectations, which have shot up recently to levels not seen in several decades. Other releases on the domestic economic calendar include consumer credit figures, producer prices, and small business sentiment. On Friday, first-quarter earnings season gets underway with reports from some of the large U.S. banks. On the international calendar, the main data points are the UK’s monthly GDP update on Friday and China’s inflation release Wednesday evening.

Definitions

Annualized Return: The rate at which an investment grows each year over the period to arrive at the final valuation.
Bear Market: A decline of at least 20% from the market’s high point to its low.
Beta: A measure of how an individual asset moves when the overall stock market increases or decreases.
Correlation: A measure of the extent to which two variables are related.
Dividend Yield: The dividend yield or dividend-price ratio of a share is the dividend per share, divided by the price per share. It is also a company’s total annual dividend
payments divided by its market capitalization, assuming the number of sharesis constant.
Developed Markets: A country that is most developed in terms of its economy and capital markets. The country must be high income, but this also includes openness
to foreign ownership, ease of capital movement, and efficiency of market institutions.
Emerging Markets: A country that has some characteristics of a developed market but does not fully meet its standards. This includes markets that may become
developed marketsin the future or were in the past.
GrowthFactor Stocks: Growth stocks are companies expected to grow sales and earnings at a fasterrate than the market average.
LargeCap Stocks: Shares of publicly traded corporationswith a market capitalization of $10 billion or more.
LTM: An acronymfor”Last Twelve Months”or the past one year.
NTM:An acronymfor”Next Twelve Months” or the next one year.
Price Return: The rate of return on an investment portfolio, where the return measure takes into account only the capital appreciation of the portfolio, not including
income generated in the form of interest or dividends.
Total Return: Return on a portfolio of investmentsincluding capital appreciation and income received on the portfolio.
Small Cap Stocks: Small-cap stocks are shares of companieswith a market capitalization of less than $2 billion.
Standard Deviation: In statistics, the standard deviation is a measure of the amount of variation or dispersion of a set of values. A low standard deviation indicates the
valuestend to be close to the historical average of the data set, while a high standarddeviationindicatesthe current value is outside of the historical average range.
Value Factor Stocks: Stocksthat are inexpensive relative to the broad market based on measures of fundamental value (e.g., price to earnings or price to book).

Disclosures and Legal Notice

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