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In the latest of an ever-evolving economic scenario, analysts see a moderate tariff environment. An average U.S. tariff rate hovering between 10% to 15% is viewed as the most probable path forward. This would be 5-6x higher than our recent policy and would maintain the largest duties on China. Key sectors like autos and steel are still heavily impacted, but would allow room for some easing through the ongoing negotiations. Under this backdrop, core inflation is expected to rise to 3.5–4%, compared to the current 2.4%, before cooling next year. Economic growth is likely to soften as higher costs weigh on consumer and corporate activity, with GDP potentially slowing to just 1% annualized.
The Federal Reserve, finding itself under the ire of the administration, is stuck in a familiar dance between inflation and recession. In all recent appearances, Chair Powell and other governors are signaling patience. Chair Powell most recently reiterated the Fed’s cautious stance in his speech at the Economic Club of Chicago, where he warned that tariffs are likely to push inflation higher and growth lower. Markets currently price in four rate cuts for 2025, analysts expect two to three cuts, but it is increasingly likely it will be two or fewer. Cuts are most likely to occur in the second half of the year as consumer spending slows down and unemployment ticks up.
Markets reflected the tension last week. A holiday-shortened session ended mixed: small- and mid-cap indexes posted gains, while the S&P 500, Dow, and Nasdaq slipped. Tech stocks took a hit after new U.S. restrictions on chip exports to China spooked investors and nailed NVIDIA and AMD. Yet not all was gloomy: retail sales jumped 1.4% in March, a demonstration of consumers’ willingness to spend. Cars led the charge, likely boosted by consumers trying to beat the 25% auto tariff clock. If this holds up next month, some economic concerns may ease slightly, while potentially boosting inflation worries.
Treasuries staged a comeback as Powell’s hawkish tone spurred a "risk-off" response. Yields on 10-year bonds fell back into the 4.0–4.5% range, a sweet spot for investors hunting steady income. Meanwhile, defensive sectors like utilities and non-energy minerals held strong, and gold surged over 3%. When in doubt, sparkle out 😎.
Outlook for Investors
Volatility will stick around like an uninvited dinner guest, but long-term investors should stay the course. It’s time to look in the mirror and decide if you are grinding this out or not. We could go lower, and we could see multiple bear market rallies. If you can’t hang on, then downshift your risk exposure. In the end, it's better to stay invested than to stay aggressive [More on this from 4/10 → Round Two].
I still believe that diversification, patience, and a keen eye for opportunity, especially as valuations wobble, could help position portfolios for a healthier 2026 rebound.
Market Activity
It was a holiday-shortened week, but that didn’t stop stocks from sliding into the weekend after five days' worth of bad news packed into only four days. Lucky us. Pressure on the dollar sank it to a three-year low (-8% vs EOY 2024) and the Fed reiterated its hawkish stance, triggering harsh words from President Trump and adding to the market’s unease. Chipmakers got more bad news with restrictions on sales to China. Gold continued its upward momentum, and in a surprise move, small caps finished the week up more the 1%.
Abroad, the European Central Bank cut for the seventh meeting in a row, offering support to stocks amid weak European growth. China reported Q1 growth of 5.4% for GDP, 5.9% for retail sales, and 7.7% for industrial output, but many analysts predict this pace to slow as tariffs take effect.
On the fixed income side, Treasuries fell back down again. The 10-year is in roughly the same place it was the week before ‘Liberation Day’.
Stocks
Fixed Income
Economic Reports
A hot print of retail sales showed the consumer still has life, but it might be a last flash before hibernation, or further fuel for inflation. It’s hard to look on the bright side. A few more stable jobless reports, and there are going to be some questions about when exactly all these Q1 layoffs were supposed to become a problem. There is also another UMich report next week, but we know it will be bad, so whatever.
Last Week
Next Week
Earnings Releases
Big OOF of the week goes to UnitedHealth, down -22% post-earnings. Now they are letting investors get murdered, too.
Another big week of earnings next week, Tesla and Google will be under the microscope. Tesla, because it is becoming a failing company, and Google, because they are losing big court cases.
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Next Week
Recommendations
Investing & Markets
- Good vs. bad inflation | Stocks may not be the inflation hedge we all think they are, if it is supply-driven inflation, that is. Bad news for 2025. I found this data very surprising, and I’m still scratching my head about it.
Source: Panmure Liberum, Bloomberg; Via Klement on Investing
- A quantum of confusion | Even the most efficient markets aren’t always efficient. What happens when you’re futuristic-sounding company runs headlong into lazy and hyped up investors looking for quantum computing stocks?
- The Compound and Friends - End of an Empire | Warren Pies of 3Fourteen Research isn’t a ray of sunshine. It’s worth watching on video for the charts.
- Kiss of Death | In-depth coverage of, well, everything. From Spectra Markets in their Friday Speedrun: Macro, currencies, NVIDIA, and other casualties of the Trump embrace, interest rate moves, and more.
History & Economics
- A Dark Comedy of Errors in Washington | Covering three mistakes of policymakers over the years, this edition of Investing in Financial History tackles the confluence of problems arriving in 2025.
Chart(s) of the Week
From the Yale School of Management, their confidence index data shows that institutional investors are feeling their confidence return. March’s reading of 81.97 (blue) is the highest since April 2024 (87.04) and higher than all but three readings from the last 10 years (Feb-Apr 2024).
Source: U.S. One-Year Confidence Index, Yale School of Management
Recessions are getting shorter. Expansions are getting longer. We’re so back.
Via:
Inflation expectations are vastly different depending on the source. The NY Fed results of 1-year inflation expectations are less than 4%. Longer-term expectations show no change. As I have been saying for weeks, this calls into question the validity of UMich. For a million reasons, hard and soft data are not lining up. Jim Bianco offered a chart this week with more illustrative examples of this divergence.
Source: NY Fed; Via @zerohedge
Source: Bloomberg; Via @biancoresearch
And finally, taking the historical view of the DXY US Dollar Index, we see that the dollar has spent more time below 100.0 than above it. We're potentially reaching an oversold position. All these moves taken together, i.e., the declining dollar, rising treasury yield, falling US stocks, are not good, and reflect diminishing confidence in the US as a market and safe haven. But this is diminishing from a position where the US was nearly the only game in town for over a decade. We are not in a position we haven’t been in before.
U.S. Dollar Index, 1967-Present
Related: Trade War Round Two: Can the U.S. Economy Stay on Its Feet?