Insights + Resources

Market Update – Tariffs Bring April Showers

Apr 4, 2025

April showers came a month early as stocks fell in March. Tariffs were the primary cause of the market jitters, although that uncertainty became too much for markets to shrug off once economic data started to weaken.

The U.S. economy had been poised to slow from last year’s pace near 3% even before the Trump administration announced new tariffs. After the weak retail sales numbers for both January and February, LPL Research reduced its growth estimate from 1.9% to 1.7% with downside risks from potential trade wars if countries retaliate. The odds of recession over the next year or so are probably about 30% as tariffs weigh on economic activity.

Companies must pay some of these levies, compressing profit margins. Some of those costs will be passed on to inflation-weary consumers in the form of higher prices. Some consumers may pull purchases forward ahead of tariffs to avoid price hikes, but others are delaying spending due to the uncertainty, weighing on the economic growth. Falling stock prices and mounting federal government layoffs are adding to consumers’ angst. It’s also difficult for companies to commit to capital projects and hiring while they sort through tariff effects.

On a more positive note, consumers have the benefit of healthy savings, years of solid income growth, and accumulated net wealth to keep the economy growing this year. Slower growth is putting downward pressure on inflation, offsetting tariff effects, and paving the way for more rate cuts from the Federal Reserve. That should help keep borrowing rates contained. Corporate America remains in excellent shape and is positioned for solid earnings growth even with a tripling or more of average U.S. tariff rates.

We may be at peak trade uncertainty right now. Stocks don’t like uncertainty, but they tend to rally once it starts to clear. We saw that during the trade war period of 2019 under Trump 1.0. From August 23, 2019, through the pre-pandemic highs on February 19, 2020, the S&P 500 index rallied 19%. That may be too much to ask over the next six months, but a double-digit rally from current levels through yearend seems attainable. The “spinach” of tariffs comes first, but it will be followed by the “candy” of tax cut extensions and deregulation later. A positive year for stocks remains well within reach.

While the broad U.S. stock market may have fallen during the first quarter, U.S. value and broad international stocks rose based on Russell and MSCI benchmarks. Seven of the 11 S&P equity sectors produced positive returns. And bonds were higher, reminding investors of the benefits of diversification.

Volatility may stay with us for a while as the policy fog continues to clear. Annual returns have historically been muted after first quarter losses. But negative sentiment suggests a durable low may be close.

As always, please reach out to us with questions.

Important Information

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

All data is provided as of April 1, 2025.

Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities.

All index data from FactSet.

The Standard & Poor’s 500 Index (S&P500) is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

Past performance does not guarantee future results.

Asset allocation does not ensure a profit or protect against a loss.

This research material was prepared by LPL Financial, LLC.

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