A Wild Week

April 28, 2025

Financial Markets

It was a remarkable and volatile week for U.S. investors. On Monday, equity markets opened sharply lower, but by Friday’s close, markets had not only recovered but finished with significant gains.

Global markets largely mirrored this unusual pattern. However, what mattered most was not the price action itself, but rather why it happened. The catalysts combined economic data and political developments, demonstrating once again how intertwined the two have become. Another positive for the equity markets is that companies continue to report their earnings for the first quarter of 2025, and the results are generally positive.  However, the forward-looking comments from management include many references to the uncertainty for the remainder of the year due to potential impacts of tariffs on input prices, supply chain disruptions, and global demand. The increased probability of these headwinds drives down estimates for corporate profit growth in 2025 and 2026. If this trend persists, investor confidence will ebb, reducing equity valuations.

Economics

At first glance, the United States economy continues to perform well—a case we have made for quite some time. Key economic indicators are not flashing major warning signs, and employment, income growth, and job creation remain healthy. However, the outlook for continued economic health is weakening.

The Federal Reserve finds itself in a quandary, balancing whether to ease short-term interest rates or wait for more concrete evidence that inflation is under sustained control. For now, policymakers appear willing to be patient, which seems like a prudent course of action given current conditions.

However, one persistent economic risk remains: tariffs. The only consistency surrounding tariff policy is its inconsistency. Adding to the confusion are President Trump’s on-again, off-again comments about potentially removing the Federal Reserve Chair—a move he does not have the authority to make unilaterally, but which nonetheless injects additional uncertainty into the markets.

Conclusion

While polling data is not always the most reliable indicator, there has been a noticeable uptick in the President’s disapproval ratings. This growing political pressure, compounded by the approaching midterm elections, may help explain the White House’s mixed messages.

Internationally, tariff tensions persist, with neither Russia nor China showing much willingness to defer to U.S. demands. America’s prestige on the global stage appears to have suffered, at least for the moment, making diplomatic and trade negotiations more difficult.

Despite these challenges, the United States remains the strongest and most dynamic global economy.

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