Market Recap – Friday, April 11, 2025
Markets Rally Amid Trade Tensions and Inflation Fears, But Uncertainty Looms Ahead
US equities ended the week on a strong note, with the S&P 500 and Nasdaq both posting notable gains. The S&P 500 had its best weekly performance since November 2023, while the Nasdaq experienced its best weekly performance since November 2022. Despite this positive momentum, today's session saw a slight pullback as markets retreated from earlier highs. The rally was driven by positive market positioning and technical dynamics, with a notable boost from Fed assurances that it would intervene in case of liquidity issues.
Trade and Inflation Concerns: While the market benefitted from some positive news, trade policy uncertainty remains a key overhang. US-China tensions intensified with China increasing tariffs on US imports to 125%, further complicating the trade landscape. In response, the Trump administration continues to emphasize the need for bespoke trade deals. Alongside trade issues, inflation expectations spiked, contributing to concerns that the Fed will have to act more cautiously in its rate-cut path. March CPI and PPI data showed inflationary pressures, though the data pre-dates the recent tariff developments.
Bank Earnings and Corporate Updates: The first round of bank earnings showed mixed results, with JPMorgan outperforming, while Wells Fargo and Morgan Stanley faced challenges. Investors continue to scrutinize the impact of tariffs on corporate guidance, especially in light of the uncertainties in the trade environment. Notable corporate movements included strong performances from companies like Huntington Ingalls, Treehouse Foods, and Harley-Davidson, while CarMax and Warner Bros. Discovery saw declines.
Economic Sentiment and Consumer Expectations: The preliminary April University of Michigan consumer sentiment survey revealed a sharp drop, with sentiment hitting its lowest level since June 2022. Inflation expectations surged to the highest levels since 1981, further reflecting concerns about price increases due to tariffs. Additionally, the job market showed signs of cooling, with expectations for higher unemployment in the near future.
Here’s Our Take
With the ongoing volatility driven by trade tensions and inflation concerns, investors need to remain vigilant as the earnings season unfolds. While there was a brief rally this week, the broader economic outlook remains uncertain, especially with tariff risks still in play. The potential for further tariff hikes and the lack of clarity around trade deals suggest caution is warranted. Investors should focus on companies with solid fundamentals and strong pricing power, particularly those in sectors that can withstand inflationary pressures. Given the mixed signals from the Fed and the ongoing geopolitical risks, a diversified and flexible approach will be key for managing risk in the coming months.