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April Market Commentary: A Shock to the System – Tariffs, Stagflation and Market Corrections Thumbnail

April Market Commentary: A Shock to the System – Tariffs, Stagflation and Market Corrections

Markets & Economy

March Recap and April Outlook

Things kicked off on a hopeful note in March, with inflation coming in a bit cooler than expected – just enough to calm nerves over tariffs. But that relief didn’t last long. The Fed wrapped up its mid-month meeting by doing... well, nothing. No changes to interest rates, no major shifts in policy. What did rattle investors, though, was the message: fewer rate cuts are coming in 2025.

Fed Chair Jerome Powell summed it up with one word: “inertia.” Translation? The Fed is frozen in place because it can’t predict what the administration will do next. The uncertainty around tariffs and hardline immigration policies has made it hard to plan, let alone react. If these policies spark supply chain shocks and squeeze labor markets, we could see a nasty combo of slow growth and rising prices – something that leaves the Fed with no good tools to respond.

Let’s dig into the data:

  • Inflation ticked down. CPI rose 2.8% over the last 12 months ending in February. For the month, it was up just 0.2%, slightly better than the expected 0.3%.
  • Jobs crushed expectations. March’s non-farm payrolls came in at 228,000, well above the 140,000 forecast. But unemployment rose to 4.2%, mostly due to more people entering the workforce.
  • Consumer confidence slipped. The Conference Board’s Leading Economic Index fell 0.3%, while the University of Michigan’s sentiment index dropped to 57 in March, down from 64.7.
  • Spending cooled. Consumer spending rose 0.4%, a far cry from the 5% expected.
  • Inflation fears rose. The University of Michigan’s survey saw one-year inflation expectations jump to 5%, with five-year projections hitting 4.1%, a level we haven’t seen since 1993.

What Does It All Mean?

April 2nd, dubbed “Liberation Day” by the administration, was supposed to be a win. Instead, it became the day tariffs hit hard. Hopes for something less harsh disappeared instantly.

Even a stronger-than-expected jobs report on April 4th couldn’t distract from the growing unease. The fear now is stagflation, which is when the economy stalls but prices keep rising. Tariffs raise costs. That keeps inflation high. And that could force the Fed to raise rates again instead of cutting them.

Without rate cuts to fall back on, growth gets tougher. Businesses start pulling back on spending. Supply chains get tangled. And if unemployment follows, the economy could tip into something uglier.

This isn't the first time we’ve danced with stagflation. Back in 1974, Gross National Product (GNP) dropped 4.2%, inflation soared to 16.8%, and unemployment hit nearly 9%. It took the shock therapy of ultra-high interest rates in the '80s to finally break the cycle.

Now, the current administration wants cuts to keep the economy moving. But Powell is holding the line – at least for the time being. 

The future of these tariffs is murky. Some could be rolled back just as quickly as they were announced. Or maybe there’s a backroom deal brewing. Either way, expect more market swings while we wait for the dust to settle.

Chart of the Month: Staying the Course Beats Trying to Time It

(Source: Bloomberg and Wells Fargo Investment Institute. S&P 500 daily data from February 1, 1994 through January 31, 2024.)

March Equity Market Highlights

  • S&P 500: -5.75%
  • Dow Jones: -4.20%
  • S&P MidCap 400: -5.68%
  • S&P SmallCap 600: -6.36%

(Source: S&P Global. Data as of March 31, 2025)

Only 2 of the 11 S&P sectors ended positive—Energy led with a 3.75% gain. Consumer Discretionary was hit the hardest, down 9.02%. Volatility spiked throughout the month—12 of 21 trading days had moves over 1%, and 2 days moved more than 2%.

March Bond Market Highlights

  • 10-Year Treasury Yield: 4.22% (up from 4.21%)
  • 30-Year Treasury Yield: 4.58% (up from 4.49%)
  • Bloomberg U.S. Aggregate Bond Index: +0.04%
  • Bloomberg Municipal Bond Index: -0.003%

The Takeaway

Markets hate uncertainty. But based on the first few days of April, they might hate some certainty, like tariff announcements, even more. Still, what drops on bad news can bounce just as fast when the headlines shift.

So when Powell talks about “inertia,” maybe he’s onto something. Staying steady, not panicking, and refusing to make rash moves is often the smartest way to ride out chaos. Trying to time your exit and reentry rarely works – it just locks in losses and leaves you chasing your tail.

That’s why we keep coming back to this: Align your investments with your goals. Think long-term. Be intentional about where your dollars go. And keep your entire financial plan working together. We're here to help make sure your money isn’t just surviving, but actually doing something meaningful.

This work is powered by Advisor I/O under the Terms of Service and may be a derivative of the original. The information contained herein is intended to be used for educational purposes only and is not exhaustive. Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return. If applicable, historical discussions and/or opinions are not predictive of future events. The content is presented in good faith and has been drawn from sources believed to be reliable. The content is not intended to be legal, tax or financial advice. Please consult a legal, tax or financial professional for information specific to your individual situation.