May Market Commentary: Does Volatility Plus Uncertainty Equal Recession?

April Recap and May Outlook

April kicked off with a jolt: aggressive tariff announcements that were way harsher than most folks expected. Businesses, investors, and economists alike didn’t see it coming. Stocks pulled back fast and hard, even flirting with bear market territory.

At first, the administration didn’t blink. Tariffs were moving ahead as planned. But the bond market didn’t like what it saw. Yields jumped, prices fell, and instead of the usual “flight to safety,” there was a growing sense of panic that the U.S. economy was losing its grip.

Traders and analysts started bracing for a recession. The futures market showed a 90%+ chance of interest rate cuts at every Fed meeting for the rest of the year. Then Fed Chair Jerome Powell gave a speech. He warned that tariffs might push inflation higher and admitted that economic uncertainty was growing. Translation: don’t expect the Fed to bail anyone out anytime soon.

On April 9th, the administration backed off…sort of. It announced a 90-day pause on tariffs (except for China). That gave markets a short-lived boost, but the damage was done. When GDP numbers dropped at the end of the month, it became clear that the economy was already feeling the pressure.

Let's dig into the data:

• Inflation (CPI) cooled off more than expected, dropping 2.4% year over year. Monthly CPI was down 0.1%.
• Jobs were steady. The U.S. added 177,000 non-farm jobs in April, beating expectations by nearly 40,000. The unemployment rate held at 4.2%.
• Consumer Confidence fell off a cliff. The Conference Board’s index dropped by 7.9 points, hitting a 13-year low for future expectations.
• GDP went negative. It fell 0.3% in Q1, a sharp drop from the 0.4% gain most economists had forecasted.

What Does It All Mean?

The Fed’s Beige Book and other economic reports showed a mostly steady economy in April. But that wasn’t enough to calm fears. Businesses were spooked. The uncertainty was freezing up plans, and some experts were openly talking about a summer recession.

Q1 GDP swung from a solid 2.4% gain in Q4 2024 to a 0.3% loss. Why? A massive jump in imports. Companies were racing to get goods into the country before tariffs hit. Imports soared 41.3%, mostly from a 50.9% jump in goods. Besides the COVID years, you’d have to go back to 1974 to find a spike like that.

This import rush will likely cool off in Q2. But other parts of the economy aren’t looking great either. Consumer spending is down. Government spending is falling too, thanks to layoffs and budget cuts.

Still, the strong labor market is holding things together. Unemployment stayed at 4.2% and more people joined the workforce. That’s a big reason why many economists think a full-blown recession isn’t a done deal, at least not yet.

For context, back in 1974 when import growth last surged like this, we were dealing with 16.8% inflation, nearly 9% unemployment, and the economy shrinking 4.2% a year. It took Paul Volcker’s sky-high interest rates in the 1980s to end that stagflation era.

The Fed met in early May and left interest rates unchanged. Their statement added that both inflation and unemployment risks had increased. Powell said, “despite heightened uncertainty, the economy is still in a solid position.” Translation: The Fed isn’t cutting rates just to calm markets. They’ll wait for more data.

The 90-day tariff countdown continues. On May 8th, the U.S. and U.K. reached a deal that left a 10% tariff in place. That likely sets a minimum baseline for other countries. But then came a surprise: Early on May 12th, the U.S. and China announced a temporary 90-day tariff rollback. That could buy us time, even if markets stay shaky.

Chart of the Month: A Strong Labor Market Belies Recession Fears, For Now

Source: Bureau of Economic Analysis

April Equity Market Highlights

• S&P 500: down 0.76%
• Dow Jones: down 3.17%
• S&P MidCap 400: down 2.32%
• S&P SmallCap 600: down 4.28%

Source: S&P Global, data as of April 30, 2025

Five of the eleven sectors in the S&P 500 posted gains. Tech led the way, up 1.58%. Energy lagged hard, down 13.73%. We saw big moves almost every other day – 11 of the 21 trading days had swings over 1%, and 8 saw swings over 2%. Daily intraday volatility jumped from 1.71% in March to 3.21% in April.

April Bond Market Highlights

• 10-year Treasury yield: 4.18% (down from 4.22%)
• 30-year Treasury yield: 4.69% (up from 4.58%)
• Bloomberg U.S. Aggregate Bond Index: +0.39%
• Bloomberg Municipal Bond Index: –0.81%

The Takeaway

Even if the tariff drama cools off, the economic and political shocks of April are going to leave a mark. Volatility is the name of the game for now. So what should you be doing?

Stick with the basics. Keep saving. Consider putting that cash in high-yield savings while rates are still strong. Use dollar-cost averaging to ease into the market instead of trying to time it. Tax-loss harvesting isn’t just for year-end anymore…there might be chances to take advantage throughout the year.

Your investment plan is more than your portfolio balance. Financial planning is about tying your money to your values, your goals, and your reality. Helping you connect the dots between your money and your mission is what we’re here for.

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