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Equity Total Returns
In April 2025, the U.S. administration introduced sweeping new tariffs on imports, aiming to match or exceed the duties imposed by other countries on American goods. These tariffs were broader and more immediate than markets had anticipated. The announcement triggered a sharp drop in stock markets as investors reacted to the prospect of higher costs for businesses and consumers, as well as the increased likelihood of retaliatory measures from U.S. trading partners. Investors grew increasingly worried that the tariffs would slow economic growth by raising costs for both producers and consumers, potentially fueling inflation while dampening demand. The uncertainty surrounding the future direction of trade policy and the risk of escalating trade wars added to the turmoil, making April one of the most turbulent months for financial markets in recent years.
Fixed Income Total Returns
As a result, stock prices fell sharply, bond yields dropped as investors sought safety, and the U.S. dollar and other currencies experienced pronounced swings, signaling broad-based anxiety about the trajectory of the U.S. and global economies. Throughout April, government bond markets were especially volatile, with yields on 10-year U.S. Treasuries dropping sharply after the tariff news, then rebounding as the month progressed. By the end of April, yields had settled somewhat but remained lower than at the start of the month.
Tariff Impacts
The U.S. dollar, which typically strengthens during periods of market uncertainty, instead experienced significant volatility and ultimately declined to multi-year lows, reflecting shaken investor confidence and mounting concerns about the U.S. economic outlook. As the dollar weakened, returns from international markets improved, since foreign investments became more valuable in dollar terms. This currency movement contributed to a notable divergence in performance, resulting in a spread of more than 7% between U.S. blue chip stocks and equities in developed foreign markets.
Real GDP
Economic data released in April revealed that the U.S. economy had contracted at an annual rate of 0.3% in the first quarter of 2025, a surprise following strong growth in the previous quarter. This contraction was largely attributed to a surge in imports as individuals and companies rushed to buy goods before tariffs took effect, weaker consumer spending, and reduced government spending. The import surge-a 41.3% quarterly spike driven by stockpiling goods ahead of Trump’s April tariffs-This in turn subtracted over 5 percentage points from GDP growth.
The reason GDP was negative despite the added spending is that the sharp increase in imports actually reduces GDP. By pulling future demand into the present, businesses and consumers effectively created a temporary spike in activity followed by an expected drop-off in subsequent quarters. This pattern disrupts normal economic activity, leading to volatility and making it harder for businesses to plan production and staffing.
Throughout the period, investors faced a series of sharp swings driven by shifting tariff decisions. Despite the significant volatility during the month, the markets ended much closer to where they started. This outcome suggests that while short-term sentiment is easily swayed by news and speculation, underlying fundamentals such as corporate earnings and long-term economic outlooks provided a stabilizing effect. It also highlights the importance of maintaining a long-term perspective, as temporary turbulence often gives way to steadier trends over time.
Why Stay Informed?
Staying informed about the latest economic trends and market movements is essential for making informed investment decisions. At Croghan Colonial Bank, we provide you with the insights you need to navigate these changes and optimize your investment strategy.
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