April 2025 Commentary

April’s unpredictable spring weather echoed the turbulence of global financial markets, which continued to wrestle with volatility following March’s tariff-induced turmoil. The month opened with a jolt: President Trump announced a sweeping new round of tariffs, surpassing even the most bearish forecasts on Wall Street. Markets swiftly reacted with steep declines, pushing major indices to their lowest levels since the COVID-19 crisis. But in true April fashion, conditions shifted just as quickly—a 90-day pause in tariff implementation, announced the very next day, sparked a sharp rebound.

With the U.S. pivoting to bilateral trade negotiations—some cooperative, others adversarial—investors were left to navigate a landscape defined by policy uncertainty and sudden reversals. Still, amid the noise, early signs of resilience emerged: corporate earnings began to surprise to the upside, suggesting that even in this turbulent climate, fundamentals may be starting to take root. The key question now is whether April’s showers will, indeed, bring May’s flowers.

While tariffs on foreign-made automobiles are expected to remain in place, progress appears to be underway with key trading partners—starting with Mexico. Once seen as China’s backdoor to the U.S. market, Mexico’s position is shifting as major Chinese manufacturers, such as BYD, pull back plans to establish new plants. In return, the U.S. has secured several strategic wins, including enhanced cooperation on counter-narcotics enforcement and improved tariff terms for domestic automakers like GM, Ford, and Stellantis, whose best-selling models are often built south of the border.

Canada, meanwhile, is grappling with its own political upheaval following Prime Minister Trudeau’s resignation and a snap election dominated by provocative interjections from former President Trump. The result—a weakened Liberal minority facing mounting frustration from the resource-rich Western provinces—aligns closely with Trump’s preferred outcome. As Ottawa readies itself for trade talks, it must now navigate a precarious balancing act between the economic priorities of Eastern industrial centers and Western energy producers—a politically charged dynamic that could undermine Canada’s negotiating leverage.

Amid this geopolitical volatility, corporate America delivered an unexpectedly strong start to the Q1 2025 earnings season. Inflation indicators such as Core PCE and CPI continue to drift lower, laying the groundwork for potential interest rate cuts. Yet the broader economic landscape remains uneven. Wall Street is left hoping that both Trump and Fed Chair Powell will put aside their mutual animosity and adhere to the data, avoiding another episode of delayed or insufficient monetary easing.

Consumer confidence has dropped to recession-like levels, in sharp contrast to a still-resilient labor market. Even recent layoffs at federal agencies, including cuts at the newly formed Department of Government Efficiency (DOGE), have done little to dent overall job growth. This growing disconnect between public sentiment and economic fundamentals highlights the caution on Main Street—even as Wall Street continues to climb the wall of worry.

The U.S. labor market remained a source of stability in April, offering a reassuring counterbalance to heightened market volatility, tariff uncertainty, and concerns over recent government workforce reductions. According to the Bureau of Labor Statistics, the economy added 228,000 jobs in March, far surpassing economists’ consensus estimate of 140,000. This marked a sharp improvement over February’s downwardly revised figure of 117,000.

While the unemployment rate ticked up slightly to 4.2% from 4.1%, it remains low by historical standards. Taken together, these figures point to a labor market that, despite geopolitical and policy noise, continues to demonstrate resilience and underlying strength. The steady pace of job creation will be closely watched by policymakers and investors alike, particularly as the Federal Reserve weighs the timing of potential rate cuts.

While the headline labor numbers were encouraging, underlying details offered a more nuanced picture. Federal government employment declined by 9,000 jobs in April, bringing the total decrease since January to 26,000. This trend stands in contrast to the final two years of the Biden administration, when public-sector hiring accounted for 25% to 50% of total monthly job gains—a period also marked by subdued wage growth.

In April, wages showed modest progress. Average hourly earnings for private nonfarm payrolls rose by $0.06, or 0.2%, to $36.06. On a year-over-year basis, wages increased by 3.8%. However, the pace of wage growth is clearly decelerating. From January to April 2025, the annualized wage growth rate slowed to 2.6%, a marked drop from the 4.0% full-year growth rate in 2024. This moderation reinforces the perception that labor cost pressures are easing—a key consideration for Fed policymakers.

Meanwhile, inflation data released in April added fuel to the growing calls for rate cuts. The March Consumer Price Index (CPI) surprised to the downside, providing a measure of relief to consumers increasingly wary of the inflationary risks posed by tariffs. Headline CPI fell 0.1%, bringing the annualized rate down to 2.4%, compared to 2.8% in February. Core CPI, which excludes food and energy, rose just 0.1% in March, translating to a 12-month core inflation rate of 2.8%—its lowest level since March 2021.

Much of the softening was driven by declining prices in used vehicles, gasoline, and household goods, pointing to a temporary reprieve from inflationary pressures. As the Fed weighs its next steps, the combination of slowing wage growth and easing inflation may tilt the balance toward an earlier-than-expected rate cut.

But any celebration was short-lived. Later in the month, the Personal Consumption Expenditures (PCE) index—the Federal Reserve’s preferred inflation gauge—painted a more complicated picture. While the 12-month core PCE inflation rate held at 2.8%, its lowest level since March 2021, the monthly data came in just above expectations. The headline PCE Price Index declined by less than 0.1% month-over-month, translating to a 2.3% annualized rate, slightly above forecasts and following a 2.7% rise in February. Core PCE, which excludes food and energy, rose 2.6% year-over-year, again modestly above expectations, though down from 3.0% in the previous month.

Adding to the uncertainty, consumer sentiment deteriorated sharply in April, as relentless media coverage and speculation surrounding tariffs weighed heavily on public perception. The University of Michigan Consumer Sentiment Index dropped to 52.2, its lowest level since July 2022. Despite the robust labor market, gradually rising wages, and a solid start to the corporate earnings season, recession fears have taken root among consumers.

Interestingly, while tariffs stoked anxiety, they may have temporarily boosted economic activity. Concerns over future price increases led to frontloaded consumer spending, helping lift Q1 GDP and cushioning the economy in the short term. Whether that momentum proves sustainable, however, remains to be seen.

While the headline figure of a 0.3% decline in Q1 GDP appears discouraging, a closer look at the components reveals a more nuanced—and in some ways optimistic—economic picture. Much of the weakness stems from record-high imports, as companies rushed to frontload goods ahead of impending tariffs. This surge was especially pronounced in sectors most exposed to trade policy, such as autos and retail, and contributed to a record $162 billion merchandise trade deficit in March.

At the same time, government spending declined, in part due to cost-cutting efforts by the Department of Government Efficiency (DOGE), which has reportedly saved over $160 billion year-to-date through aggressive departmental reviews. Offsetting some of that fiscal tightening, the U.S. Treasury collected $17.4 billion in tariff-related revenue in April, nearly double March’s $9.6 billion and dramatically outpacing the revenue spikes seen during the first Trump administration. Since January, total collections from customs and excise taxes have topped $70 billion, providing a short-term boost to federal coffers.

One of the most encouraging signs in the GDP release was the 3.6% rise in Private Domestic Investment, a strong rebound following a 1.0% decline in the prior quarter. Within this category, non-residential fixed investment in equipment stood out, supported by a wave of announcements in large-scale data center development. Projects totaling over $500 billion—including the high-profile Project Stargate, a joint effort by Oracle, SoftBank, OpenAI, Apple, and Nvidia—highlight continued confidence in U.S. infrastructure and technological leadership.

As economic data diverges and trade policy uncertainty lingers, tensions have grown between President Trump and Fed Chair Jerome Powell. Powell has remained cautious, continuing to trim the Fed’s balance sheet and maintain the benchmark federal funds rate at 4.3%, despite mounting pressure from the administration to begin easing. April’s FOMC statement reiterated the need for patience, citing unresolved questions around the inflationary impact of tariffs and mixed economic signals.

Wall Street, meanwhile, is increasingly wary of a “too little, too late” scenario. Many investors point to the relatively weaker data that preceded past rate cuts, suggesting that current conditions could already justify action. Still, Powell emphasized the strength of “hard” data—particularly job growth, consumer spending, and the overall disinflation trend—as evidence that the economy remains on solid footing

This dynamic underscores a key distinction investors would be wise to remember: “soft” data—like consumer sentiment and business surveys—have turned notably negative, but the underlying fundamentals remain intact. As with the Pygmalion effect, there’s a risk that negative expectations could begin to influence real outcomes. But for now, the prudent approach mirrors Powell’s: stay measured, data-driven, and cautious—but not alarmist.

The Conference Board’s Leading Economic Index (LEI) declined again in March, falling 0.7% to 100.5, following a 0.2% drop in February (revised from –0.3%). Over the six-month period ending in March 2025, the LEI declined by 1.2%, marking a slower pace of contraction compared to the 2.3% drop recorded between March and September 2024. The March decline was concentrated in three key components that weakened amid heightened economic uncertainty ahead of pending tariff announcements: consumer expectations fell further, stock prices registered their sharpest monthly drop since September 2022, and new manufacturing orders softened. While these indicators point to growing caution among consumers and businesses, the data does not suggest that a recession is underway or imminent. However, the Conference Board has revised its forecast for U.S. GDP growth in 2025 downward to 1.6%, slightly below the economy’s long-term potential. The updated outlook reflects concerns that prolonged trade tensions could contribute to higher inflation, renewed supply chain disruptions, weaker investment and consumption, and a cooling labor market.

As we enter May and approach the conclusion of the Q1 2025 earnings season, the sun appears to be breaking through the clouds. Despite the steep market correction following the so-called "Day of Liberation," both the Dow Jones Industrial Average and the Nasdaq-100 have exited correction territory, with the S&P 500 not far behind. Q1 annualized blended earnings growth came in at 12.8%, significantly above the initial forecast of 7.2% and well ahead of the S&P 500’s 10-year average of 8.9%. This upside surprise reflects stronger-than-expected consumer spending, continued momentum in AI-driven capital expenditures, margin resilience, and the effects of inventory frontloading ahead of new tariffs.

As anticipated, tariffs are increasingly being used not just as economic levers but as tools of geopolitical strategy. This shift is particularly relevant in the context of rising tensions across Eastern Europe, the Middle East, India, and Southeast Asia. While the evolving nature of trade policy creates uncertainty, it is worth noting that new bilateral and multilateral negotiations are taking place weekly. These discussions, along with incremental clarifications from the White House, provide some reassurance to markets that a new trade framework—however fragmented—may eventually emerge.

Still, the rapid pace of policy announcements and reversals continues to create informational whiplash for investors. Amid the noise, however, opportunities remain both strong and diverse. Infrastructure spending is poised to expand as the U.S. reinforces domestic capabilities and modernizes supply chains. Defense budgets are likely to remain elevated given the shifting dynamics of global alliances and military posturing. Software, a largely "tariff-insulated" sector, continues to attract hundreds of billions in new investment from both domestic and international firms.

Importantly, the tariff regime should not be seen as a surprise. Many companies began preparing for this outcome as early as the 2024 election cycle, recalling the trade dynamics of Trump’s first term. Firms caught flat-footed were often those already grappling with internal inefficiencies—making them vulnerable regardless of trade policy. For investors, this underscores the importance of focusing on management quality, strategic foresight, and operational agility.

At the portfolio level, staying grounded is essential. Volatility should neither be dismissed nor overstated. As with the Federal Reserve’s approach to policy, this moment calls for patience, discipline, and a reliance on hard data over headlines. While sensational news can stir short-term reactions, lasting investment success comes from thoughtful analysis and steady execution. Seasonal transitions often bring unpredictable weather—sudden storms amid warming trends. Likewise, as we approach the typically calmer summer months, it’s wise to carry an umbrella. Market volatility may ease as Wall Street shifts into vacation mode, but preparedness remains key for navigating any unexpected squalls along the way.