April 2025 was a whirlwind of volatility for the stock market, driven by geopolitical developments and mixed economic data. The S&P 500 experienced a swing of nearly 15% before ending the month with a modest loss of 0.7%. Bond yields also had an unexpected mid-month tantrum and the economy contracted for the first time in three years.
The month began with significant market turmoil following President Trump's announcement of extensive tariffs on 60 countries, including China. This led to a sharp sell-off, with the S&P 500 dropping more than 12% in the first week of April. However, a subsequent announcement of a 90-day pause on the implementation of these tariffs immediately sent stocks rocketing higher. In one day, the S&P 500 rallied 9.5%, marking one of the top 10 largest single-day percentage moves in the index’s history. Volatility remained elevated in the final weeks but by April 30th the S&P 500 had risen 15% from its low. Year-to date the index is down 4.9%.
The volatility was particularly hard on smaller stocks as mid-caps were down 2.3% and small caps dropped 4.2%. International markets continued to prove resilient this year. Foreign developed markets increased by 4.7% and emerging markets rose by 1.3% in April, with a yearly increase of 12% and 4.4% respectively. It is worth noting that the US dollar fell over 4% in April, and has declined over 8% on the year.
In the bond market, U.S. Treasury yields experienced significant fluctuations. The 10-year U.S. government bond yield rose from 4% to nearly 4.6% in early April, before settling back to 4.17% by the end of the month. Typically, economic worries drive yields lower and prices higher as investors seek safe haven treasury bonds. The unusual yield movement led to speculative concerns that foreign governments, like China, might be selling U.S. debt in retaliation for the tariffs.
The U.S economy showed mixed signals in the hard data released in April. Manufacturing contracted, but consumer spending remained solid. Many economists have suggested that this may be attributed to front-loaded purchases ahead of expected price hikes. Additionally, consumer sentiment surveys hit historic lows, dropping for the fourth straight month.
First quarter GDP growth was slightly negative, driven lower by increased imports as companies built inventory in anticipation of tariff-driven price increases. Recession odds have now increased significantly with this Q1 GDP number. The Federal Reserve has hinted at two rate cuts, but the timing and magnitude of those remain uncertain given Fed Chair Powell's focus on data. Inflation concerns coupled with any indication of a softening in the job market, could pressure the Fed to lower rates more than planned. Stagflation or inflation in a slowing or contracting economy remains the Fed's biggest concern. Fortunately, the April jobs reports was solid as the labor market added more jobs than expected, unemployment remained steady, and average hourly earnings rose slightly.
April 2025 was a month of significant volatility, but it has been a good case in the complications of market timing. The fact that some of the best and worst days on record all happened within days of each other highlights the importance of staying the course. Appropriate asset allocation and thoughtful diversification have proved paramount in mitigating recent volatility.