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Another Week, Another Tariff Change
Year-to-Date Returns (as of April 23rd, 10:40 AM, 2025)
- S&P 500: (-7.2%) Bear Market
- Nasdaq Composite: (-12.02%) Bear Market
- Dow Jones Industrial Average: (-5.19%) Correction
- S&P 500 Equally Weighted: (-4.23%)
- Russell 2000 (Small Cap Index): (-12.16%) Bear Market
- Gold: +22.18% New High
Weekend Tariff Changes
Not to sound like a broken record, but the market is experiencing significant movements driven by tariff news. Today, President Donald Trump said he intends to be “very nice” to China in any trade talks, suggesting that tariffs could decrease if the two countries reach a deal. This may indicate that he is softening his tough stance on Beijing in response to market volatility.
“It will come down substantially, but it won’t be zero,” Trump said Tuesday in Washington, following earlier comments from Treasury Secretary Scott Bessent, who remarked that the standoff was unsustainable. Trump added, “We’re going to be very nice and they’re going to be very nice, and we’ll see what happens.”
The markets are also rallying on news that surprised few: President Trump announced he would not fire Jerome Powell. Together with his softer approach to China, this news has contributed to a slight market rebound.
Economic News this week:
Housing Starts March 1324 (vs 0.0% Estimated)
Housing Starts MOM 1482% (vs 1450 Estimated)
Building Permits (vs 1.4% Estimated)
Initial Jobless Claims 215k (vs 225k Estimated)
Continuing Claims 1885k (vs 1870k Estimated)
Stagflation: Are we headed there?
As of April 23, 2025, the U.S. economy faces an increased risk of entering stagflation, characterized by slow growth, persistent inflation, and rising unemployment. The International Monetary Fund (IMF) has downgraded the U.S. growth forecast for 2025 to 1.8%, down from 2.8% in 2024, while projecting inflation a rise in the consumer price index to around 3%. This purported economic slowdown is said to be due to recent trade policies, including sweeping tariffs that have disrupted global supply chains and increased production costs. Of course, it is more plausible that tariffs were only the catalyst that illuminated the already slowing economy.
Some tariffs have reached up to 104% on Chinese imports, raising the average U.S. tariff rate to levels not seen since the early 20th century. Despite recent announcements, the risks remain high. The increase in consumer prices and decrease in business investment are straining the economy. Financial markets have reacted negatively, leading to substantial declines in major indices and a loss of investor confidence.
Federal Reserve officials, including Chair Jerome Powell, have acknowledged the challenges posed by this economic environment, noting the difficulty in addressing both inflation and unemployment simultaneously. While the labor market remains relatively stable for now, the combination of policy-induced supply shocks and market volatility indicates that the U.S. economy is at a critical juncture, with stagflation becoming an increasingly tenable scenario.
Final Thoughts:
As the adage goes, “It’s not about timing the market, it’s about time in the market”. Recent months have reminded investors that, trying to time trying to time the market can lead to missing incredible rallies based on simple headlines or reinvesting just before massive selloffs. Holding onto quality stocks, adjusting cash holdings, and adding defensive positions can help hedge against the downside risks while still allowing participation in market upswings.
Have a great weekend.
Your OmniStar Investment Team
