As we dive into April, the markets are still feeling the aftershocks of March’s events, but it might not be all tricks and pranks. Here’s a breakdown of the month’s developments and what we might expect next.
Tariffs and the Road Ahead
In early March, the US implemented new tariffs, and the data came rolling in fast. January’s trade deficits jumped a whopping 34% as companies scrambled to stockpile materials ahead of the tariffs. While this rush of front-running materials might weigh down Q1 GDP, it’s mostly precious metals, which aren’t bad to hoard (they’re non-perishable and useful in products). The US trade balance will likely adjust moving forward, especially with more tariffs expected in April—though these may be narrower than initially anticipated, with the focus on 15 nations with large trade deficits.
Stock Market Shifts
The S&P 500 has faced some serious turbulence recently. By mid-March, it gave up all its gains for the year, dipping into negative territory. While politics often gets blamed, there’s a more straightforward culprit: earnings. After a surge in stock prices over the last few years, earnings haven’t kept pace. Since 2022, stock prices have risen by 23%, but earnings have only climbed by about 16%. This kind of imbalance points to a market correction, which some experts believe is overdue. (See chart)
Looking ahead, analysts expect earnings to rise by over 11% in 2025, with nearly 14% growth in 2026. So, if you’re investing for the long term, there’s still reason to stay optimistic—especially if the Fed starts lowering interest rates more than expected.
The Debt Situation
On the national front, the US debt is getting attention. The Congressional Budget Office predicts that the US debt-to-GDP ratio will hit 107% by 2029, exceeding World War II levels, with the potential for even higher levels if current tax cuts continue. However, the administration is actively auditing programs and has already identified $130 billion in potential savings, aiming for $1 trillion by May. That said, debt interest payments still make up 13% of federal spending, and with a recession looming, the challenge of managing this debt could intensify.
Personal Finances
February saw personal income rise by 0.8% (higher than the expected 0.4%), while spending grew slower than expected (0.4% vs. 0.5%). But dig deeper, and it’s clear that government transfers are behind much of the income rise, with public-sector pay increasing more than private-sector wages. Still, it’s nice to see net savings at its highest level since last June.
The Fed’s Moves
The Federal Reserve met this month and kept interest rates steady, with no changes in sight. They did revise their inflation forecast upward, now predicting 2.8% inflation (up from 2.5%). While the Fed maintains that tariffs won’t have a big impact on inflation, it’s important to remember that “inflation is always and everywhere a monetary phenomenon,” as Milton Friedman famously said. The Fed also lowered its GDP growth projection from 2.1% to 1.7%, reflecting ongoing economic challenges.
Tech Sector Shifts
On the tech side, Nvidia made waves with its announcement to invest billions into a US-based manufacturing facility. This move comes in response to growing geopolitical risks, particularly from China, and reflects a broader trend fueled by the CHIPS Act, which provides tax incentives to relocate manufacturing to the US.
So, What’s Next?
We might be in for more market turbulence as we digest the tail end of easy money, higher costs, and shifting supply chains. With stock prices appearing overvalued and recession risks rising, it’s likely we’ll see more market corrections ahead. But remember, recessions are part of the market cycle. Staying invested and sticking to your long-term investment plan remains key.
Market Returns (as of March 31st, 2025)
• Dow: -1.8% YTD, +6.3% 12 months, +16.2% 5 years
• S&P 500: -4.8% YTD, +7.6% 12 months, +18.8% 5 years
• Nasdaq: -8% YTD, +6.4% 12 months, +21.4% 6 years
