Executive Summary:
- Stocks Decline Post-Liberation Day But Begin Recovery
- Growth Outpaces Value, Reversing Year-to-Date Trends
- GDP Contracts in Q1 Largely Due to Pre-Tariff Import Surge
- Strong Earnings Growth, Yet Clouded Outlook
April Index Performance:
U.S. equities concluded April lower, though they recovered from severe declines following the tariff announcement on April 2. Market breadth was negative, with the equal-weight S&P 500 trailing its official index by about 160 basis points.
On April 2, President Trump announced tariffs, including a 10% baseline tax on imports, 34% on Chinese goods, 25% on car imports, and 20% on EU goods. The S&P 500 saw its worst two-day drop since March 2020, stirring growth concerns. China and the EU retaliated with tariffs of their own. On April 9, a 90-day tariff pause was announced, excluding China, leading to a significant S&P 500 rally. Tensions with China persisted, though Treasury Secretary Bessent hinted at de-escalation. Trade agreements with Japan and India appeared near, while discussions with the EU remained challenging.
Analysts adjusted S&P 500 year-end targets due to tariff impacts and raised recession probabilities. Morgan Stanley anticipated limited growth for the S&P 500 until a China deal was secured. Goldman Sachs increased the recession likelihood to 45% but later softened this view after the tariff pause. Concerns grew over potential supply chain disruptions from the trade conflict.
In economic news, Q1 GDP unexpectedly declined, mainly due to pre-tariff import activities and reduced government spending. Consumer sentiment and confidence dropped to their lowest in years. Despite this, March’s job report exceeded expectations, and both CPI and PPI figures were cooler than anticipated. However, the retail sector saw a rebound, driven by auto sales.
Sector Performance for April:
FactSet reported solid earnings from 50% of S&P 500 companies in Q1 2025, though future outlooks are unclear. Over 76% of firms exceeded EPS estimates, slightly below the 5-year average. Communications led positive surprises with a 24.8% beat. Real Estate lagged with a 3.2% miss. Strong earnings growth marked the second consecutive quarter of double-digit increases. Health Care, Communications, and Technology sectors saw notable EPS growth, while Industrials and Energy performed poorly.
Sales growth was positive in most sectors, with only Materials and Energy contracting. Energy companies led sales surprises, while overall sales growth marked the 18th consecutive quarter of revenue expansion for S&P 500 companies.
Future Outlook:
May will conclude the Q1 2025 earnings season and provide additional economic data, including job, inflation, and GDP reports. Historically, May has shown positive stock performance but this is not guaranteed. The Federal Reserve is unlikely to take action, though its press conference may impact markets. Upcoming CPI data could signal potential rate cuts in June. Critical to market sentiment will be developments in tariff negotiations. Protracted discussions could impact corporate earnings and stock performance.
Economic Calendar:
Economic indicators and developments will be key in shaping market expectations.
Note: The information provided is for informational purposes only and should not be construed as investment advice.
