Week in Review: April 11, 2025

April 14, 2025

Recap & Commentary

Markets ended the week higher, with the S&P 500 enjoying its best week since November, following President Trump’s announcement he was pausing most of the country-specific tariffs announced on April 2. Trump did, however, leave in place the baseline 10% tariff on all imports entering the US, regardless of the country of origin, while increasing tariffs on Chinese goods to 145%. On Friday, China increased tariffs on all US goods to 125%. The point-to-point gain for the S&P 500 masked the week’s extreme volatility, in which the index experienced intraday moves, either up or down, of 6% or more, on four separate days.

Somewhat overlooked and perhaps more perplexing, was the unusually large volatility in the bond market. Over the course of the week longer-term yields rose dramatically with 10-Year and 30-Year Treasury yields experiencing their largest weekly increases since 2001 and 1987, respectively. That in turn led to the Bloomberg US Aggregate Bond index, the broadest measure of the US bond market, falling 2.5%, it second largest weekly decline since 1987. The selloff was attributed to multiple factors including, 1) the unwinding of the “basis trade” in which hedge funds employ significant leverage to exploit small pricing differences between Treasury futures and Treasury bonds; 2) foreign investors selling US Treasuries, possibly in retaliation to recent tariffs, and 3) investors selling bonds to purchase equities following Trump’s “pause” announcement.

The selloff in Treasuries, and corresponding decline in the US dollar, suggested investors remained wary of a US recession. It also suggested investors are turning to other safe haven assets, given the recent unpredictability of US trade policy, which was evidenced by strength in the Japanese yen, Swiss franc, and Euro, to which the US dollar fell to its lowest level in three years.

Economic Commentary

Inflation data improved further in March, with headline consumer inflation (CPI) slowing to an annual pace of 2.4%, aided by a sharp decline in energy prices. The reading marked a six-month low and tied for the lowest level since February 2021. Core CPI, excluding food and energy prices, slowed to an annual pace of 2.8%, its lowest level since March 2021, aided by price declines for air fares, auto insurance, used vehicles, and recreation. After being range-bound between 3.2% and 3.3% from June 2024 through January 2025, core CPI has slowed 0.5% in the past two months. Producer prices also slowed meaningfully in March. The most recent readings do not reflect the effects of President Trump’s April 2 decision to raise tariffs by at least 10% on all imports entering the US, something that is expected to put upward pressure on inflation in the months ahead, contingent upon how long the tariffs remain in effect.

Consumer sentiment fell to its second lowest level on record dating back to 1952. The reading, below any recorded during the Great Financial Crisis of 2008-2009, was driven by growing concerns about the economic impact of recently announced tariffs. That was reflected in one-year inflation expectations which jumped from 5.0% to 6.7%, the highest level since 1981, while five-year inflation expectations rose 0.3% to 4.4%, the highest level since 1991.

Of Note

Over the weekend, the government announced that smartphones, computers, and other electronic devices imported from China will be temporarily exempted from the 125% “reciprocal” tariffs. However, a 20% baseline tariff will remain.

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Market Indices   (As of 04/11/2025)

• Retail Sales
• Housing Starts
• Industrial Production
• Initial Jobless Claims