📈 Weekly Market Insights 📉
The market endured a sharp downturn last week, driven by the announcement of new, more aggressive than expected reciprocal tariffs by the U.S. which were quickly met with retaliatory actions from China. This sparked a “risk-off” mood across global markets, sending investors scrambling for safety and triggering heavy losses across major indices.
The turbulence began on Tuesday, April 2nd, when President Trump implemented a minimum 10% tariff on all countries, with higher rates for nations where the U.S. faces larger trade deficits. As things stand right now, China, in particular, will endure a 34% tariff, which is in addition to the 20% tariffs imposed earlier this year. Other major U.S. trading partners, such as the European Union, Vietnam, and Japan, will also see tariffs of 20% or higher.
Notably, Canada and Mexico, two of the U.S.’s largest trading partners, were largely exempt from this new tariff policy. China wasted no time in retaliating, escalating the uncertainty. This prompted a wave of de-risking, with investors fleeing to safer assets, driving substantial declines in global equities.
While major stock market indices endured substantial losses last week, falling within the 9-10% range, bonds benefited from safe-haven demand, driving the 10-year Treasury yield below 4% – a level not seen since October ’24, a period that also marked the last time the U.S. Dollar was this weak. This risk-off environment also heavily impacted growth-oriented commodities, with oil prices dropping by nearly 10% and copper experiencing an even steeper decline of over 14%. Surprisingly, even gold succumbed to the selling pressure, finishing the week down by more than a percent.
Source: stockcharts.com
Why Things May Not Be as Bad as They Seem
The recent market pullback has understandably rattled nerves, but it’s important to recognize what’s driving it. The drop we’re seeing is largely a reaction to newly announced tariffs, not necessarily a sign of deeper cracks in the foundation of the economy.
These tariffs, introduced via executive order, have sparked uncertainty around trade policy and corporate profitability. However, they’re not set in stone. Because they were enacted without legislation, they can be rolled back just as quickly, especially with growing political pressure ahead of the mid-term elections. In short, this doesn’t have to be a permanent path.
Most critically, the market may have already priced in the worst-case tariff scenario. That removes some of the uncertainty from the equation. Any indication that these policies could be softened or reversed might be enough to spark a rebound. While short-term volatility is still in play, even modest positive news could be a welcome catalyst.
Of course, we’re not out of the woods just yet. If the tariffs stay in place for long, they could drive up prices and slow economic growth, a tough combination that could limit the Federal Reserve’s ability to respond. And if higher costs start eating into corporate profits, earnings could fall short of expectations, leaving stocks vulnerable to more downside.
That said, the broader economic picture remains relatively strong. Growth over the past couple of years has been solid. Corporate earnings are still comparatively healthy. Consumers are carrying less debt than before the pandemic, and job growth remains healthy with historically low unemployment. While recession risks have edged up slightly, they’re still far from inevitable. And if conditions worsen meaningfully, the Fed has room to respond as interest rates are high enough that they can cut if needed.
The Bigger Picture
What we’re experiencing is a market reacting to a specific policy shift, not an apparent collapse of confidence in the economy itself. And markets, by their nature, react first and ask questions later. Once bad news is digested, they tend to stabilize and often recover.
Pullbacks are normal. The S&P 500 typically sees three to four 5% dips a year, with one 10% correction. Large drops, of 15% or more, happen every couple of years. They’re part of the investment landscape, not a sign that something is fundamentally broken forever.
Looking ahead, much depends on how policy evolves and whether investor sentiment can stabilize. But with a strong economic base and the possibility that tariff fears have peaked, there’s reason to believe a good part of the damage has already been done. It’s important to remember during times like these that markets typically only discount the same news once.
The Week Ahead:
I was up early this morning, in my home office at 4AM hoping to see a more encouraging picture in the overnight futures. Unfortunately, the bearish mood from last week appears to be lingering, as the Dow Jones futures, as of this writing, are currently indicating another significant drop of 1200 points. This week’s economic spotlight will shine on inflation, with the release of the CPI on Wednesday and the PPI on Friday. Adding to the data points, we’ll also receive the University of Michigan’s consumer sentiment reading on Friday. In the current environment, dominated by tariff concerns and a generally pessimistic outlook, it’s reasonable to anticipate that positive economic news might not provide much lift, while disappointing figures could further intensify the current market headwinds.
Tying it all together:
With markets in what we call “oversold” territory (meaning they’ve dropped a good bit in a short period), the Fed’s supportive stance could help fuel a short-term bounce. However, since they’re staying on the sidelines for now, trade and tariff news will likely continue to drive volatility. Until we get clearer policies and stronger economic data, it’s going to be tough to fully trust any market rally despite recent strong earnings trends.
For now, defensive sectors, value, and low-volatility stocks have held up well, while bond prices have benefitted from falling interest rates — a prime example of how tactically managing (such as we aim to do) a diversified portfolio can endeavor to help investors navigate uncertain times with less exposure to daily market swings.
Stay patient, stay vigilant, stay diversified. Historically, times like these tend to come and go, often providing an opportunity for those who keep an eye on the bigger picture.
Please feel free to share these commentaries and, should you have any questions regarding your current strategy or the markets in general, please reach out to your CIAS Investment Adviser Representative.
Edward J. Sabo
Chief Investment Officer
Capital Investment Advisory Services, LLC
Important Disclosures:
Past performance is not indicative of future results. This material is not financial advice or an offer to sell any product. The statements contained herein are solely based upon the opinions of Edward J. Sabo and the data available at the time of publication of this report, and there is no assurance that any predicted or implied results will actually occur. Information was obtained from third-party sources, which are believed to be reliable, but are not guaranteed as to their accuracy or completeness.
The actual characteristics with respect to any particular client account will vary based on a number of factors including but not limited to: (i) the size of the account; (ii) investment restrictions applicable to the account, if any; and (iii) market exigencies at the time of investment. Capital Investment Advisory Services, LLC (CIAS) reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs. The information provided in this report should not be considered a recommendation to purchase or sell any particular security. There is no assurance that any securities discussed herein will remain in an account’s portfolio at the time you receive this report or that securities sold have not been repurchased. The securities discussed may not represent an account’s entire portfolio and in the aggregate may represent only a small percentage of an account’s portfolio holdings. It should not be assumed that any of the securities transactions, holdings or sectors discussed were or will prove to be profitable, or that the investment recommendations or decisions we make in the future will be profitable or will equal the investment performance of the securities discussed herein.
CIAS is a registered investment advisor. More information about the advisor, including its investment strategies and objectives, can be obtained by visiting www.capital-invest.com. A copy of CIAS’s disclosure statement (Part 2 of Form ADV) is available, without charge, upon request. Our Form ADV contains information regarding our Firm’s business practices and the backgrounds of our key personnel. Please contact us at (919) 831-2370 if you would like to receive this information.
Capital Investment Advisory Services, LLC
100 E. Six Forks Road, Ste. 200; Raleigh, North Carolina 27609
Securities offered through Capital Investment Group, Inc. & Capital Investment Brokerage, Inc.
100 East Six Forks Road; Raleigh, North Carolina 27609
Members FINRA and SIPC