Dear Friend and Clients, 

 

Over the past few months, President Trump has increasingly used tariffs as a multi-purpose tool to varying degrees — to pressure foreign governments diplomatically, to encourage the return of manufacturing to the U.S., and to raise revenue for potential future tax cuts.

 

However, his abrupt and aggressive approach — likened to a cannonball into a pool — has created disruptive ripples across the global economy, introducing short-term uncertainty and likely near-term economic strain until a clearer long-term tariff policy emerges.  

 

There are a handful of points we hope you take away from the note:

In this note, we break down the key drivers behind the sell-off in March and the historically tough April. As we noted previously, a pullback was overdue given stretched valuations and a market that had become top-heavy and overly reliant on tech. While short-term volatility can feel unsettling, we continue to focus on the long-term picture and stay grounded in a disciplined and systematic based approach.

Best regards,

 

Brad Banken, Investment Advisor Representative

 

Allison Banken, COO

 

We are unable to mention specific companies and or tradable investment products in order to follow compliance guidelines as the content cannot be construed as our individual view or recommendation on any investment product.  Please reach out if you have any questions or would like more specific information on anything below.

All performance metrics are as of date of publication.

 

 

The S&P500 saw the weakest Q1 performance since 2022 (4.3%).  Despite this fact, 7 out of 11 sectors or ~47% of the S&P500 names were positive at the end of Q1.  Let that sink in! The equal weight market was only (0.6%) vs S&P500 (4.3%). The Mag 7 stocks were the many contributors to the weakness.

 

Although not in the quarter, it is historically significant to note that during April, we saw the S&P500 intraday hit down (21%) on April 4th as an intraday low, which technically is called a recession, but bounced to close down (19.9%).  Q1 GDP came in negative at (0.3%); if Q2 is negative that will constitute the other definition of recession.  The soft data for three different providers (Michigan, Conference, AAII) on sentiment, inflation and job expectations have gotten worse sequentially since January. 

 

Investors appeared to be balancing near-term trade tensions with a longer-term view of economic stability, aided by strong labor market data and steady consumer demand. While the path forward remains uneven, the market’s early-year performance reflects cautious optimism amid policy-driven crosscurrents.

 

We wrote in our last few notes about the market being expensive, top heavy, tech heavy and historical pullback frequencies.  Welp, we got it!   We certainty did not anticipate the veracity of tariff implementation, but we will try to read between the lines to demonstrate why we stick to a systematic approach.  

The S&P 500 price performance by day YTD through the end of April: we will address the April 2nd through April 10th unprecedented sell off and then bounce back. 

Here is the performance of the major US indices we follow YTD through May 5th.  As you can see, the equal weight significantly outperformed small caps and the Mag 7 

Considering how sharp and fast the sell-off was, as we noted earlier, it’s helpful to put this pullback in the context of typical annual pullbacks and returns since 1980. When you zoom out, it doesn’t look nearly as extreme.

Below is the daily S&P500 performance during March and April, the historic sell of started on April 3rd -4.84% followed by April 3rd -5.97%.  The bounce back day was April 9th with a +9.25% gain.  They are historic days within the past 20 years.  

The first 66 trading days of 2025 were the fourth worst since 1928

This was one of the worse starts to the year; and it did not include April's historical movements.

 

We sent out a note in March following the sharp selloffs triggered by the Mexico and Canada tariff headlines note linked here

 

We were down 15% in March and 20% in April. To put that in context:

 

 

While the recent pullbacks feel sharp, they’re actually in line with how markets tend to behave over time.

 

According to Yale, the current weighted global tariff rate sits at 26.5% — the highest since 1909 and even higher than the Smoot-Hawley Tariff of 1929.  Uncertainty is the enemy of business confidence. It's difficult for companies to plan capital expenditures, manage supply chains, or build inventory when the rules keep shifting.

 

Quick tariff insight: A 10% tariff does not mean a 10% increase in consumer prices. Tariffs are applied at the port of entry, and since roughly 60% of an imported product's value comes from its supply chain, the actual pass-through effect is smaller. A good rule of thumb: a 1% increase in tariffs raises overall prices by about 0.1%, since imports represent just 11% of GDP.

 

In our last note, we highlighted how “soft” data (like sentiment surveys) was deteriorating while “hard” data (like employment and spending) remained solid. One had to give way for a clearer picture to emerge. Throughout Q1, more strategists began estimates of a recession (reminder - a technical recession is two consecutive quarters of negative GDP). On April 30, we got Q1 GDP — and it was negative - BUT let's read between the lines.

 

The official survey points to 6.5% inflation, but Truflation—a real-time measure of actual inflation—is currently just 1.37% and has been trending lower since the tariff-related market jitters in February. Unlike CPI, which relies on lagging indicators, Truflation uses real-time data. The Consumer Price Index (CPI), developed in the 1980s, is the government’s official inflation metric and is heavily influenced by its shelter component, which is backward looking and makes up about 40% of the index. While CPI pulls from approximately 80,000 data points, Truflation aggregates over 18 million, including up-to-date shelter data from multiple sources.

 

The March hard data, reported in April, showed strength: with solid job growth and cooling inflation. Even if tariffs push prices higher, reading between the lines, we’re starting from a lower inflation base than the soft data is showing.  

 

As for the negative Q1 GDP reported in April, a massive surge in imports ahead of expected tariffs skewed the numbers. Imports jumped from $8.9B in Q4 to $140B in Q1 as businesses stockpiled medical supplies, consumer goods, and tech equipment. These front-loaded imports create a negative GDP now but will support growth later as the goods are sold — making it more of a timing issue than a true contraction. The key question is whether this trend reverses in the coming quarters.

Below are the contributing factors to GDP; the burnt orange color is net exports (exports minus imports)

The Q1 net export data of GDP showed the biggest decline going back to 1945

The job market surprisingly has been strong in March and the last report for April (red bar)

 

We believe the combination of soft data — particularly sentiment and inflation expectations — and April’s historic ~20% market selloff resulted in a pricing environment that reflects an overly pessimistic barbell of outcomes. Stepping back, it’s worth asking: are we truly in a more uncertain or severe environment than during the Global Financial Crisis or COVID? And do investors genuinely expect inflation to reaccelerate to 6.5% — a level even higher than peak expectations during the pandemic?

 

The two key drivers of the S&P 500 are expected earnings growth and valuation multiples. 2025 earnings growth estimates have dropped from 13–14% to around 7%. Given the uncertainty, many companies will likely offer conservative or no full-year guidance. In this environment, simply meeting earnings expectations and reaffirming guidance may be sufficient. As one major delivery company put it: “The only thing we are certain of is we don’t know which, if any, of the tariff scenarios will play out.”

 

We feel a lot of negativity has been priced in and the soft data has gotten overdone, but we acknowledge that there is a greater than zero chance that it leaks into the consumer being cautious until we get tariff clarity.  We will continue to monitor the hard data but fully acknowledge we could see a technical recession with Q2 GDP negative as well.  That said, once tarriffs are finally defined (if they are) we could see the continuation of the AI productivity wqaterall into the coirporate world, potential tax cuts, and potential deregulation.  

 

Small/Mid/Equal vs Mega/Tech - 

For over a year we had been trimming mega caps and tech and rotating into small/mid/and equal weight.  We were right in trimming mega caps/tech; the rotation into equal weight worked however small caps have continued to lag.  That said, going forward I could see additions still in small caps.  It's only a matter of time before small caps catch up.  

 

International - 

Latin America - continue to like longer term add to existing ETFs and you may see Argentina and Chile specific ETFs make their way in.

India - supply chain dynamics continue to be favorable in the near term and longer term continue to like the demographics and GDP growth, always looking to add. 

“Invest with patience, not emotions”

"Let time do the heavy lifting"

“Don't let headlines dictate strategies”

“Wealth is built through discipline, not constant adjustments”

“Trust the process, remain invested”

Questions? Feedback?  Drop us a line at info@oakstreaminvestments.com

 

(908) 271-8788

The opinions and forecasts expressed are strictly those of Brad Banken's and may not actually come to pass.  

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