Week in Review: April 4, 2025

April 7, 2025

Recap & Commentary

Markets suffered their worst week since the depths of the COVID pandemic, following President Trump’s announcement of reciprocal tariffs. The subsequent fallout overshadowed all other news including a generally upbeat March employment report.

On Wednesday, President Trump announced a baseline 10% tariff on all goods entering the US. Trump also announced additional country-specific tariffs that in some cases, including China, exceeded 50%. The tariffs were far broader and steeper than markets expected, leading to a sharp selloff. Already shaken by Trump’s announcement, markets were further rattled on Friday after China announced 34% retaliatory tariffs on all US goods. Investors fear other countries may announce similar retaliatory tariffs, in turn inviting additional tariffs from the US. In short, markets are now concerned Trump’s tariffs are not a negotiating tactic but a fundamental shift in economic policy, ushering in a potentially protracted and economically damaging trade war.

The two-day selloff following Trump’s announcement saw the S&P 500 fall 10.5% while erasing $5.4T in market value. The index is now down 17.4% from its recent record high set in February and nearing bear market territory, defined as a pullback of 20% or more. Small caps (Russell 2000) and the tech-heavy NASDAQ both ended the week in bear market territory, down 26% and 23%, respectively from recent highs. The Dow Jones Industrial Average suffered its first ever back-to-back daily declines of 1,500 points, or more.

When asked about the new tariffs on Friday, Fed Chair Jay Powell said “It is now becoming clear that the tariff increases will be significantly larger than expected. The same is likely to be true of the economic effects, which will include higher inflation and slower growth.” Such a combination would put the Fed in a difficult position, where additional interest rate cuts meant to support the economy/employment could also have the effect of inflaming inflation.

Economic Commentary

Job growth surprised to the upside in March as nonfarm payrolls added 228K new jobs, well above the expected 137K and February’s pace of 117K.  Unemployment ticked up 0.1%, due to an increase in the participation rate, but remained in the 4.0-4.2% range in which it has found itself the past 11 months. Annual wage growth slowed to 3.8%, an eight-month low.

Data released by industry group Institute for Supply Management (ISM) pointed to slowing conditions in March for both the manufacturing and services sectors. After returning to growth in January and February, following two years of contraction, manufacturing activity once again contracted in March, led by sharp declines in employment- which fell to a six-month low- and new orders, while prices jumped to their highest level since June 2022, point to accelerating inflation pressures.

Service sector activity remained modestly positive while slowing to a nine-month low, led by a sharp decline in employment and slowing new orders. Price increases slowed during the month but remained high on an absolute basis.

Of Note

According to the nonpartisan Tax Foundation, President Trump’s newly announced tariffs will reduce after-tax income by an average of 1.9% and amount to an average increase of more than $1,900 per US household in 2025.

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Market Indices   (As of 04/04/2025)

• Consumer Inflation (CPI)
• Producer Inflation (PPI)
• Consumer Sentiment
• Small Business Optimism
• Initial Jobless Claims