Market Commentary: April–May 2025
Markets experienced extraordinary volatility during April and May, driven by the global “Liberation Day” tariff announcement, which proved significantly more severe than anticipated. The S&P 500 declined 12.1% over four days—its steepest drop since 1950. However, a swift response from the Trump administration, including a pause and targeted exceptions, catalyzed a sharp rebound. By mid‑May the index had recovered 22%.
Volatility, as measured by the VIX, peaked at 53 in April before falling back to 23 by mid‑May, reflecting a rapid normalization in investor sentiment.
Bond and currency markets also responded sharply. The U.S. 10‑year Treasury yield rose from 4.21% to 4.61%, while the 30‑year stabilized around 5.00%. The U.S. Dollar Index declined by more than 9.5%, reflecting investor skepticism toward U.S. trade and fiscal policy.
Commodity performance was mixed. WTI crude oil fell 18.6% year‑to‑date, while gold gained 23% amid demand for safe‑haven assets. European equities posted a 4.7% gain in April before retracing some gains in May; emerging markets were broadly flat.
Tariff Implications
While final terms remain fluid, tariffs are likely to settle in a 10–15% range for most trading partners with the exception of China. U.S. consumer confidence has already retreated to 86, echoing its pandemic‑era level. The expectations component slid to 54, the lowest since October 2011.
Macro Conditions
- Unemployment is steady at 4.2%.
• CPI and PPI continue to decelerate gradually.
• Retail sales remain firm, bolstered by inventory pre‑ordering ahead of the tariff rollout.
International Perspective
Europe, heavily export‑oriented, is feeling the strain. The ECB cut policy rates from 2.50% to 2.25%, and Germany’s commitment to defense and infrastructure spending should soften the blow. China’s economy expanded 5.4% in Q1, aided by front‑loaded orders; Beijing has responded to U.S. tariffs on a measured, reciprocal basis. Both nations recently agreed to a 90‑day tariff freeze.
Outlook
With the administration’s most contentious policies front‑loaded, the next phase could deliver more constructive results. Legislation moving through Congress is expected to be stimulative, preserving the 2016 tax cuts and enhancing depreciation rules. These initiatives, alongside ongoing deregulation, should underpin growth.
Early indications of renewed on‑shore manufacturing investment are encouraging. The S&P 500 has stabilized just below 6,000, implying a forward P/E of roughly 22×—still elevated but more reasonable post‑correction.
We are cautious about near‑term upside in U.S. equities at these levels. European equities offer more compelling valuations, while precious metals provide diversification and upside in a risk‑aware portfolio. Credit markets remain attractive on both absolute and risk‑adjusted bases, and we retain high conviction in select software‑as‑a‑service and other innovative technology platforms. Patience and rigorous selectivity remain essential.
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