Weekly Market Performance — April 4, 2025

Markets Blog

David Matzko, LPL Research

LPL Research provides its Weekly Market Performance for the week of March 31, 2025. Domestic equities sold off over the latter half of the week after President Trump delivered an aggressive trade plan in his so-called “Liberation Day” tariff announcement from the White House Rose Garden. Treasury prices rallied in response, sending yields sharply lower while sparking a global stock market rout as investors assessed the impact and potential retaliatory moves. Commodities also traded lower, weighed down by falling oil prices, while the dollar weakened slightly.

Index Performance

U.S. and International Equities

U.S. Equities: At the end of the first quarter Monday, broad U.S. equity market benchmarks suffered quarterly losses as investors rotated out of index-heavyweight mega cap technology stocks. Last quarter the large cap S&P 500 Index shed 4.3% while the small cap Russell 2000 Index slipped 9%, however, value stocks delivered a brighter start to 2025 with a 2% gain, outperforming their growth counterparts which printed a 10% decline.

This week stocks strung together three days of modest gains leading into the highly anticipated “Liberation Day” reciprocal tariff announcement from the White House Wednesday evening. President Donald Trump’s latest batch of tariffs arrived harsher than expected, highlighted by a baseline 10% tariff on all goods imported to the U.S. and 20% levies on the European Union (EU), 24% on Japan, and 34% on China. Equity markets tumbled in response on concerns over adverse implications on economic growth and inflation, plus corporate earnings, spending, and hiring. Concerns escalated overnight on Friday after China retaliated with a 34% tariff of their own on the U.S., leading stocks to extend Thursday’s slide. The market brushed off strong payrolls numbers released Friday morning with the latest trade spat in focus, in addition to Federal Reserve (Fed) Chair Jerome Powell stating that the economic impact of tariffs could be larger than expected and a wait-and-see approach to rate cuts. But on the brighter side, the Trump administration and global nations appear open to negotiation which could dial back tariffs.

International Equities: European markets also ended the week sharply lower following the latest trade developments, despite reports of productive conversations and potential 11th-hour trade deals in with the U.S. in the U.K. and Germany. Decelerating March inflation data released Tuesday seemed like a moot point by week’s end after sentiment was beaten down by weaker economic projections and steeper inflation forecasts for the region as a result of the ongoing trade tensions. Investors also continued to speculate on the European Union’s (EU) potential response, while market pricing for a European Central Bank (ECB) rate cut jumped to around 90% ahead of next week’s policy decision. Outside of tariff jitters, headlines included U.K. fiscal watchdog David Miles warning of U.S. tariffs eliminating the U.K.’s fiscal headroom, and France’s Marine Le Pen’s embezzlement case.

Asian stocks also faced strong downside pressure to end the week, capping their worst week since last April. Fears around retaliatory moves added to the overarching risk-off sentiment after China announced reciprocal levies, while several nations pledged to negotiate with the U.S. and buy more American goods. Exporters broadly took a blow despite the exceptions for semiconductors and pharmaceuticals, and geographically, Japan bore the brunt of selling (specifically bank stocks) as trade tensions continued to trim Bank of Japan (BOJ) rate hike hopes. China declined despite the Finance Ministry’s announcement of a $69 billion capital injection into four state banks to replenish core tier-1 capital, although losses were more measured. Taiwan avoided some of this week’s selling pressure with back-to-back holidays to end the week but still closed with notable losses. South Korea, Australia, and India all declined as well.

Fixed Income, Currency, and Commodity Markets

Fixed Income: The Bloomberg U.S. Aggregate Index rallied this week with Treasury yields tumbling to end the week as equity markets sold off (sending investors to haven assets like bonds) while the fixed income market bolstered rate cut bets for the remainder of 2025. The rate-sensitive two-year yield traded 31 basis points (0.31%) lower, while the 10-year yield also shed around 31 basis points, dropping back below the 4% level.

Shorter maturity Treasury yields fell more than longer maturity yields over the back half of the week as more Fed rate cuts get priced in as economic growth concerns are currently outweighing inflation concerns. As a result, markets have fully priced in four cuts in 2025 with a coin flip probability of a fifth cut. Within the credit markets, spreads have widened meaningfully, with investment-grade spreads at 1.01% over Treasuries and high-yield spreads at 3.87% as of Friday morning (per the Bloomberg Corporate Index and Bloomberg U.S. Corporate High Yield Index, respectively). High yield spreads are 1.31% higher since the February 18 lows (0.50% came Thursday) with investment-grade spreads wider by 0.25% over the same period. While equity and high-yield credit markets are weakening, this recent market episode is a reminder that high-quality fixed income markets, particularly Treasuries and agency mortgage-backed securities, not only provide income but act like a ballast to portfolios during elevated market uncertainty.

Commodities and Currencies: The Bloomberg Commodities Index traded lower over the last five days, erasing modest early week gains. West Texas Intermediate (WTI) crude plunged 11%, weighed down by U.S. tariffs and the following response from the world’s largest oil importer, China. Prices were weighed down by concerns about a slowing global economy curbing demand, as well as output increases from OPEC+ and the anticipated rise in crude balances. Gold dropped below the week-to-date flatline in Friday trading after fairly rangebound trading for most of the week. Risk aversion helped support the yellow metal for most of the week, before traders began selling some of their gold holdings to cover losses in other areas of the market. In currencies, the dollar weakened against its peers as Thursday’s plunge in Treasury yields trimmed the dollar’s interest rate differentials, although strong labor market data on Friday provided some support for the greenback.

Economic Weekly Roundup

Some Sectors Less Sensitive to Tariffs. Health care services, which includes hospitals and residential care facilities, are supporting employment growth and are likely less sensitive to tariffs. Bureau of Labor Statistics data released Friday morning indicated payrolls grew by 228,000 in March and the unemployment rate changed little to 4.15% from 4.14%. Rounding made the change more pronounced. Health care added 54,000 jobs in March, in line with the average monthly gain of 52,000 over the prior 12 months. This sector is probably less sensitive to tariffs and should not be as impacted as wholesale and retail trade sectors. Employment also increased in retail trade, partially reflecting the return of workers from a strike and will not likely support payroll growth going forward. Federal government employment declined and will likely decline further as DOGE impacts become more pronounced. Over the past 12 months, average hourly earnings have increased by 3.8%, growing faster than inflation and supporting consumer spending. Employment in January and February combined is 48,000 lower than previously reported. Downward revisions are typical during a slowdown.

Investors may find some solace here but most likely, the employment report will be overshadowed by the tension bubbling up in global trade, particularly with China. The Fed’s job got a lot more complex as inflation is not yet under control. Trade policy could become the catalyst which pushes the economy into recession.

Stagflation. As highlighted earlier, risks of stagflation are rising. According to ISM manufacturing data released this week, prices paid rose the highest since mid-2022 while employment and new orders shrank. The employment component has declined for most of the past three years, hinting that the manufacturing economy has had weak spots for quite a long time. In a separate report, the job opening rate for February fell to 4.5%, matching pre-pandemic rates as the labor market returns to more normal levels.

Rising prices while business activity slows imply the economy could be heading into stagflation, a time when investors find safety in hard assets. The Fed finds itself in a tough spot because shaky corporate and consumer confidence could slow spending, leading to more than just a slowdown.

The Week Ahead

The following economic data is slated for the week ahead:

• Monday: Consumer Credit (Feb)

• Tuesday: NFIB Small Business Optimism (Mar)

• Wednesday: MBA Mortgage Applications (Apr 4), Wholesale Trade Sales (Feb), Wholesale Inventories (Feb final), FOMC Meeting Minutes (Mar 19)

• Thursday: Headline and core CPI (Mar), Real Average Hourly Earnings (Mar), Real Average Weekly Earnings (Mar), Initial Jobless Claims (April 5), Continuing Claims (Mar 29), Federal Budget Balance (Mar)

• Friday: Headline and core PPI (Mar), University of Michigan Consumer Sentiment Report (April preliminary)

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