Market Update: April 21, 2025
On a Good Friday-shortened week, economic data included gains in retail sales, while industrial production and housing starts fell back.
Equities experienced a slightly mellower week compared to the one prior, ending lower for U.S. large cap stocks, but a positive week for U.S. small caps and foreign developed markets overall. Bonds fared positively as interest rates fell back. Commodities also fared positively in several areas, including precious metals and energy.
U.S. stocks settled down from the volatility of the prior week, although it was relative, ending in the negative on net, although small cap stocks saw gains. By sector, energy led with gains of over 5%, followed by materials and more defensive consumer staples and utilities. On the negative side were declines of over a percent in technology (largely Nvidia and Microsoft), consumer discretionary (Amazon, Starbucks, and Tesla), and communications. Nvidia (along with a group of related companies) was hampered by news that its specialized H20 chips, quality-restricted to satisfy prior export limitations to China, could be disallowed and placed in same category as other unavailable specialized chips. Real estate also gained over 5% along with lower yields across the U.S. Treasury curve.
Per FactSet, 12% of S&P 500 firms have reported Q1 earnings results so far, with over 70% showing a positive earnings surprise and over 60% with a positive revenue surprise. The expected blended year-over-year earnings growth rate remains over 7%, with ‘Magnificent 7’ companies expected to lead with 15% earnings growth, with 5% for the ‘other 493,’ in keeping with recent trends, although the gap between the two primary groups has been slowly closing. While this has been described as a potential ‘throwaway’ pre-tariff quarter, most attention is focused on management commentary about tariff preparations and impacts on bottom lines, in addition to how much guidance is given or pulled away due to current high levels of uncertainty.
However, specific government trade policy and monetary policy response remained top of mind for financial markets. U.S. Treasury Secretary Bessent reassured domestic corporate executives to stop worrying, as there will be “a lot more clarity on the way forward over the next 90 days,” not on only tariffs, but also tax policy and deregulation. In a speech last week to the Economic Club of Chicago, Fed Chair Powell referred to the recent tariffs as “significantly larger” than they expected, and even larger than their “upside case,” with their likely economic effects “which will include higher inflation and slower growth,” all of which creating a potentially “challenging scenario” with their dual mandate goals “in tension.” Perhaps markets were most unnerved, again, by the uncertainty narrative by his point that there “isn’t a modern experience for how to think about this.” As he again reiterated the balancing act between keeping inflation under control and slowing economic growth, with seemingly more focus on the former as an underpinning for policy. Markets took this to mean that rate cuts may not be immediate, with a ‘higher for longer’ theme again, with the Fed not coming to immediate aid.
Foreign stocks fared better than U.S. again, along with a decline in the U.S. dollar, with the U.K. and Europe experiencing gains of several percent, exceeding Japan, which was little-changed. The ECB cut policy interest rates by another quarter-percent, to 2.25%, with policy language pointing to concern over the forward growth impact from trade uncertainty. Emerging markets eked out little change, with gains in Mexico and India as well as China, which is in the middle of the most intense U.S. tariff rates and trade policy negotiations. On the bright side, Chinese GDP for Q1 came in at 5.4%, exceeding expectations.
Bonds fared positively across the board, as U.S. Treasury yields settled back down in line with global trade uncertainty and expectations for weaker economic growth, should current tariff rates stay in place. However, high yield also fared positively as spreads contracted a bit. Foreign bonds were boosted by a weaker dollar, in both developed and emerging groups.
Commodities generally earned gains for the week, with energy and precious metals each up several percent, offsetting little change in industrial metals and agriculture. Crude oil rose nearly 5% last week to $64/barrel, with some drivers being higher Chinese demand and Middle East concerns, including Gaza airstrikes and U.S. political pressure on Iran to curb production and exports as part of nuclear negotiations.
The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness. All information and opinions expressed are subject to change without notice. Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product.