Market Update – April 7th, 2025

Financial Markets

Stocks sold off sharply last week after the announcement of tariffs that were more aggressive than expected, reigniting concerns about both inflation and the potential for a recession. As of market close on Friday, April 4th, the S&P 500 declined 9.1%, while the Dow Jones Industrial Average fell 7.9%. The Nasdaq Composite dropped 10% on the week, pushing it more than 20% below recent highs and officially into bear market territory. In contrast, bonds posted gains as yields moved lower, with the Bloomberg Barclays U.S. Aggregate Bond Index rising 0.7% for the week.

Source: Zacks

Market News

Tariffs. On Wednesday afternoon last week, as expected, President Trump announced a new round of tariffs on over 180 countries, branded as “reciprocal tariffs.” However, the scope and aggressiveness of these tariffs were far greater than what markets had anticipated. The new tariffs are based on the formula below, which is largely based on the current trade deficit level, as well as a minimum 10% tariff.

Source: US Trade Representative

Where:

• Xi is total exports
• Mi is total imports
• p is the passthrough from tariffs to import prices
• E represents elasticity of imports with respect to import prices

Markets reacted swiftly, with stocks declining on Thursday and Friday as investors began to price in the risks associated with these significant policy changes. If sustained over a prolonged period, these tariffs could have broad economic implications—potentially driving inflation higher, pressuring corporate earnings, and slowing global economic growth.

Source: President Donald Trump via Truth Social

March Jobs

March’s jobs report delivered a mixed bag of economic data, with both positive surprises and some weaker-than-expected figures. The unemployment rate ticked slightly higher to 4.2%, missing expectations of 4.1%. Job growth exceeded forecasts, with 228,000 new jobs added during the month. Job gains largely came from healthcare (+54,000), social assistance (+24,000), and retail trade (+24,000).

In the government sector, federal employment declined by 4,000 jobs in March, however this figure may understate the impact of recent changes, as the establishment survey still counts federal employees on paid leave or receiving severance as employed. Additionally, job gains for January and February were revised lower, suggesting that the labor market’s strength may have been slightly overstated. Wage growth came in weaker than expected but remained steady year-over-year at 3.8%.

Source: Bureau of Labor Statistics

ISM Manufacturing

The ISM Manufacturing Index slipped to 49.0% in March, ending a brief two-month period of expansion and signaling a return to contraction in the sector. Key components of the report—new orders, production, and backlogs—all declined, pointing to weaker demand and slower output. In contrast, the prices and inventories indexes rose month over month, suggesting some upward pressure on input costs and a potential buildup of stock. These shifts present an interesting backdrop, especially as many are hoping that U.S.-based manufacturing will see renewed momentum amid ongoing tariff discussions aimed at boosting domestic production.

Source: Institute for Supply Management

ISM Service

The ISM Services Index came in at 50.8% in March, slightly below expectations but still indicating modest expansion. This marks the ninth straight month of growth and the 55th expansionary reading in the past 58 months.

Within the Services Index, the Employment Index dropped sharply to 46.2%, its first contraction in six months and a notable decline from February. The Prices Index edged lower to 60.9% but remains elevated, pointing to ongoing cost pressures. Business activity and imports improved on the month, but the overall picture suggests a services sector that continues to grow—albeit at a slower pace and with increasing sensitivity to labor market weakness and policy uncertainty, including the potential impact of tariffs.

Source: Institute for Supply Management

Recession Indicators

This week’s market selloff was not driven by a significant shift in current economic data, but rather by growing expectations of a tariff-related downturn ahead. The market, which is inherently forward-looking, appears to be pricing in a more bearish scenario in which tariffs are maintained and accelerate an economic slowdown.

Our recession framework currently reflects four bullish signals, two bearish, and two neutral. By these signals, economic conditions do not appear to have deteriorated yet, however several of them do have a lag.

Looking ahead, we expect upcoming data to potentially shift, especially as more economists raise the probability of a recession. While the economy remains stable for now, the potential impact of tariffs introduces a notable level of uncertainty—clearly reflected in the market’s reaction last week.

Summary

Markets tumbled last week as newly announced tariffs far exceeded expectations, sparking fears of rising inflation, slowing global growth, and increased recession risk. Economic data painted a mixed picture: job growth remained solid but was offset by weaker wage growth and downward revisions, while manufacturing returned to contraction and services showed signs of slowing amid growing policy uncertainty.

We appreciate your continued trust.

Thank you,

Joseph M. Maas,
CFA, CFP®, ChFC, CLU®, MSFS, CCIM, CVA, ABAR, CM&AA

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