Market Commentary: April Showers Bring May Flowers?
April can be summed up in one word: Volatility. We expect these uneasy conditions to continue. In April, the S&P 500 closed at 5,569, which was down .76% from the March 31st close of 5,611. On April 8th, the Market reached a low of 4,982, which was an 11.2% decline. Since the lows, the S&P 500 has recovered 10.44%. As the following chart shows, April was filled with wild swings yet barely changed in the end. This reflects why it is important to maintain a longer-term view and participate opportunistically with the market anomalies.
Before we continue, we feel it is important to reiterate that PB FAM Private Wealth does not take a political view, our focus is on how the policies out of D.C. (regardless of party) impact our client’s financial well-being.
Portfolio Activity
At the end of 2024 and beginning of 2025, we reduced our overweight to equities down to neutral as we expected a correction (10-14% decline) in the first quarter. We were deliberate and purposeful in our tactics as we waited for the tariff announcement on April 2nd before making any further changes. Global Markets sold off further on the April 2nd news and the S&P 500 moved down close to 20% off the record highs which led to an underweight of ~3% in equities verse our neutral target. As a result, we elected to add back to equities bringing our underweight back to neutral. Rebalancing portfolios can add nicely to returns over time. We stand ready to overweight equities after the current turmoil is resolved. Market drivers for the second half of 2025 include the next tax bill (President Trump has called this “One Big Beautiful Bill”), deregulation, and the potential interest rate cuts by the Fed (two to four quarter point cuts by year end).
Impact of the Trump Tariff Tantrum
President Trump declared April 2nd “Liberation Day”. This wreaked havoc on world markets. The equity markets declined, the dollar weakened, gold surged, and fixed income markets began to see spreads widen and rates climb a bit. Much of the initial shock from the outsize tariffs (much higher than anyone fathomed) has improved following the implementation of a 90-day pause announced on April 9th. Where does that leave us now?
Using a mechanic shop analogy, we find ourselves with a garage full of vehicles that are in search of a solution to a rattle or some other issue. We might get it right, but we may also create other mechanical problems in pursuit of a fix…some of which could be harder to correct.
· European Tariffs: Negotiations in Europe over free trade and more spending on US products and services should lead to a compromise. The garage is full with the European Union, UK, Switzerland, and a number of other countries requiring time to negotiate these agreements. However, this is also bringing the EU closer to China as it begins to view the US as a less reliable and more hostile trade partner.
· India: News out of India suggest that India will be one of the more accommodating trade partners as they seek to gain market share from China. When this car is repaired, we may have significant improvements, which include Apple moving a substantial part of their iPhone production to India from China.
· Japan, South Korea, Vietnam: Strong momentum has been reported in these markets. If the success in this region plays out, the US could be better positioned in Asia than before - even with the ongoing challenges in China.
· China: The US and China are in an all-out trade war basically embargoing each other’s products today. We must see improvement at some point, but this will take a while. The US feels China is a currency manipulator, they steal intellectual property, and we have a substantial trade imbalance. Retailers are beginning to assign “import” mark-ups to products, so the American public will begin to feel the surcharge of this trade war. This vehicle is going to need a large amount of body work and compromise.
· Canada/Mexico: The headlines here have subsided some with two of our largest trading partners. President Trump likely played a large role in swinging the Canadian election as he galvanized the voting populace to remain with the Liberal party and new Prime Minister Mark Carney. Moving forward, we may find an updated version of the USMCA result from the negotiations. Ideally, this will be a customized vehicle that hopefully puts to rest any trade challenges with our neighbors.
· Heard Island and McDonald Islands: No one lives here. Why are they on the list? Maybe the Administration is trying to trade fish for the penguins in exchange for mineral rights. In fairness, the penguins have been manipulating cold hard currents for decades…
· DOGE: We have a ten-story mechanic shop getting repaired (and they might all be Teslas). The Department of Commerce, Department of Education, IRS, State Department…each department is under pressure to slash costs. Whether it is freezing donations to other countries which don’t necessarily benefit the US, enforcing student loans instead of passing the debt on to taxpayers, or cutting 20-25% of a department’s headcount, there is so much in play that it will take a while to see the end of this play out.
· Global Wars: Are we near the end of the Ukraine/Russia war, Israel/Gaza conflict, or getting a nuclear deal with Iran that is better than the one we walked away from under Trump in 2017? The State Department is busy and resources are stretched thin (not enough mechanics to get things fixed fast enough).
We can go on, but this shock and awe approach in the first 100 days of the Administration has sparked many uncertainties as to what lies ahead. All of this feels a bit like a new version of the Billie Joel classic “We Didn’t Start the Fire”. The US may achieve some wins and may need to take some losses. The Markets hope resolutions comes sooner than later as we look to avoid a recession. Arguably, it may be too late. We now have a garage full of vehicles that are stripped down to the frame and need careful time and attention to put them back together. Waiting for the timing of repairs creates uncertainty (think the start of Covid), as businesses freeze in anticipation of how to make the next move. President Trump has a lot at risk – namely his economic legacy. The plan may just be to break things now, slow the economy down, and when things are fixed, the economy reenters acceleration mode just in time for the Midterm election. If this thesis is correct, the latter half of the year will be the strongest and 2026 will look better than 2025.
PB FAM Private Wealth is closely monitoring the economic news and corporate earnings to determine if the economy is going to have prolonged challenges or if we will be road-worthy and able to enjoy the scenery created by the thunderstorms of spring. As always, please contact us if you have questions. We are here for you and appreciate the responsibility to be your co-pilot on this journey.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
All investing involves risk including loss of principal. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
The S&P 500 is a stock market index tracking the stock performance of 500 of the largest companies listed on stock exchanges in the United States. Indexes are unmanaged and cannot be invested in directly.
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