Quick Takes
- Stocks Lower. U.S. equity indices were relatively unchanged in April as weak sentiment and trade policy changes continued to worry investors. The S&P 500 fell 1.1% and the Nasdaq 100 rose 0.7%. The Magnificent 7, which has driven the market over the last few years, fell about 1% in April.
- Inflation and Interest Rates. The 10Y treasury yield remained flat in April at 4.2% as President Trump and congressional Republicans look to cut spending and taxes. Core PCE inflation for March was in line with expectations at 2.6% while headline PCE inflation was 2.3%.
- Liberation Day. On April 2, President Trump announced a new set of tariffs on select trade partners in response to what the administration has claimed are unfair trade barriers on U.S. goods. The tariffs included an additional 34% on China, 20% on the E.U., 46% on Vietnam, 32% on Taiwan, 26% on India, 24% on Japan, and others. Trump paused the tariffs for 90 days, one week after announcing them.
- Ukraine Minerals Deal. The U.S. and Ukraine signed a deal for U.S. access to Ukrainian minerals on April 30. The deal dropped a key Trump demand that Ukraine allow the U.S. to recoup billions of dollars in military aid in exchange for mineral access.
Asset Class Performance
Large caps outperformed small caps in April. U.S. stocks underperformed international stocks for the third consecutive month as trade policy uncertainty, weak consumer sentiment, and negative earnings revisions hurt U.S. markets. Bonds and international stocks were up in April while U.S. stocks and real estate fell.
Markets & Macroeconomics
In March, inflation came in cooler than expected on both the consumer and producer sides of things. Headline CPI inflation came in at 2.4% versus the forecasted 2.5% and core CPI came in 2.8% higher than last year versus the expected 3.0% jump. Producer price inflation also declined in March with headline PPI at 2.7% versus the expected 3.3% and core PPI at 3.3% versus the projected 3.6% for the month. All of these inflation figures for March were lower than February levels. Much of this shift downward is attributable to a decline in food and beverage and healthcare services inflation. Conference board consumer confidence fell in March for the fifth consecutive month from 92.9 to 86.0. University of Michigan consumer sentiment increased slightly after falling for three straight months with consumers expecting inflation to remain very elevated for the foreseeable future with 1Y inflation expectations at 6.5% and five-to-ten-year expectations at 4.4%. Small business optimism also fell for the third consecutive month. Despite the decline in sentiment, retail sales rose in March by 1.4%. Housing market data was mixed as housing starts fell 11.4% in March while building permits rose 0.5% from the prior month. MBA mortgage applications fell for four of the last five weeks. New home sales grew by 7.4% during the month, but existing home sales fell by 5.9%. In the labor market, U.S. job growth accelerated in March as the US added 228K jobs compared to economists’ expectations of 140K and February’s 151K jobs. Despite the strong jobs print, unemployment rose from 4.1% to 4.2% while the labor force participation rate increased from 62.4% to 62.5%. Average hourly earnings grew slower than economists were expecting but still grew by 3.8% year-over-year. In manufacturing, the ISM manufacturing index for March came in at 49.0, indicating a contraction in activity while the S&P Global Manufacturing PMI came in at 50.2, indicating a small expansion of activity. Various Fed manufacturing indices showed declining activity in March. Industrial production declined during the month by 0.3% from February’s level. Q1 GDP growth was negative at an annualized -0.3% on a higher trade deficit as consumers and businesses bought more in anticipation of higher tariffs and prices.
Bottom Line: Unemployment remains low and job creation remains resilient, but consumer and business sentiment is weakening as tariff policy changes continue to reduce visibility through the end of the year and into 2026.