Trust Investment Management
April was another volatile month for both the equity and fixed income markets. Investors knew for quite some time that the current administration would implement new tariffs. Regardless, when the announcement was made in the White House Rose Garden early in April, the increases were substantially higher than expected and sparked a three day sell-off. The U.S. equity markets recovered most of the losses, but not enough to avoid ending the month in the red. Interestingly, developed international and emerging markets managed to close the month higher as investors rotated into foreign equities to better diversify their portfolios, while the dollar also weakened.
Real gross domestic product (GDP) decreased at an annual rate of 0.3 percent in the first quarter of 2025, according to the advance estimate released by the U.S. Bureau of Economic Analysis (BEA) at the end of April. The underlying numbers suggest that the news is not all bad. Imports in the first quarter skyrocketed as companies stockpiled inventories to avoid the new tariffs, and imports are subtracted from GDP (since GDP measures a country’s production and imports are not produced by our country). Had this not happened, GDP would have been positive. Another widely followed metric to measure economic growth is real final sales to private domestic purchasers. According to the BEA, real final sales to private domestic purchasers increased 3.0 percent in the first quarter, compared with an increase of 2.9 percent in the fourth quarter. Additionally, the International Monetary Fund (IMF) projects that the U.S. economy will grow by 1.8 percent in 2025, and 1.7 percent in 2026. This is not to say that there are no concerns. If the tariff negotiations are not resolved in a timely manner, it could lead to a recession.
With all the uncertainty the Fed is in a challenging position. The Core Personal Consumption Expenditures Price Index (PCE), which is the Fed’s preferred inflation gauge, came in at 2.6 percent year-over-year, as expected, and the labor market remains strong. Federal Reserve Chairman Jerome Powell expressed that the Fed needs more clarity before it goes back to cutting rates. However, investors expect that the Fed will lower the Federal target rate by 75bps this year, beginning with a 25bps cut in June.
While we expect the volatility to continue until the tariff negotiations have been resolved, we would also like to highlight that just a few trading days can be responsible for the largest gains during a recovery and being out of the market can mean missing out on the most profitable periods. Abandoning your long-term investment plan just because of market uncertainty is not recommended.
