As we close out April, it's clear that 2025 continues to present both challenges and opportunities for investors. This month brought new tariff developments, market volatility, strong (and sometimes surprising) corporate earnings, and key economic signals that we are watching closely.
Here’s a breakdown of the major themes shaping the markets — and how I am positioning portfolios for the road ahead.
White House Headlines and Market Volatility
April was a month that will stand out in investment history, dominated by sharp swings in trade policy and market sentiment. The month opened with the White House floating the idea of a sweeping 20% tariff on all imports. Although that broad measure was quickly abandoned, a 10% baseline tariff was announced, along with country-specific duties. Markets responded sharply, with equities falling and volatility surging as investors digested the news. By the end of that first week, China retaliated with its own tariffs, intensifying concerns about an all-out trade war.
The impact was immediate. Technology stocks, heavily reliant on global supply chains, were among the hardest hit, while energy prices also dropped on worries about slowing global demand and due to the unwinding of OPEC+ supply cuts. The volatility index (VIX) surged above 60, signaling heightened fear in the market. Bond yields tumbled, with the 10-year Treasury yield falling below 4%, and futures markets began pricing in a full percentage-point rate cut by the Federal Reserve before year-end. Markets were sending a clear signal: concerns about a potential slowdown or recession were rising.
The U.S.-China conflict escalated quickly from there. Initial tariffs tied to China’s role in the fentanyl crisis grew into a full-blown tariff war. After an initial 20% tariff, the U.S. imposed additional measures that brought the total tariff burden on Chinese goods to a staggering 145%. China responded with its own 125% tariff burden on U.S. imports. The European Union opted to pause its own retaliatory actions for the time being, choosing to watch the evolving situation carefully.
By mid-April, however, markets began to find some footing. On April 9th, the U.S. announced a 90-day pause on reciprocal tariffs—excluding China—which helped stabilize sentiment. Investor optimism strengthened when the White House announced exemptions for critical consumer electronics such as smartphones, laptops, and semiconductors. This news fueled a strong rally, with the S&P 500 jumping 1.8% intraday before settling modestly higher. However, that optimism was short-lived when the administration followed through with new semiconductor-specific tariffs. Companies like Nvidia and AMD quickly disclosed substantial expected charges—$5.5 billion and $800 million, respectively—leading to renewed selling pressure in both the S&P 500 and Nasdaq indexes.
Last week brought another dramatic swing in sentiment. Early in the week, news broke that China was threatening to retaliate against any country that cut deals with the United States to its disadvantage, sending the Dow down nearly 1,000 points. At the same time, rumors circulated that the White House was exploring ways to remove Federal Reserve Chairman Jerome Powell, following a series of critical social media posts from President Trump. Market anxiety peaked.
Then, almost as quickly, the tone shifted again. Treasury Secretary Bessent suggested that trade tensions could ease, and President Trump indicated that tariff levels were too high and would come down through negotiations. Trump also confirmed that Fed Chair Powell would not be removed, providing some additional stability to the markets. Optimism returned by week's end, aided by reports that China was beginning to selectively roll back tariffs on certain U.S. imports, including semiconductors and pharmaceuticals. Further rumors surfaced that exemptions might soon be extended to medical gear and chemicals. Additionally, progress was reportedly being made on trade deals with key partners such as South Korea and India.
In short, April was a month of rapid escalation and partial de-escalation, driving major moves across equity, bond, and commodity markets. While risks remain elevated, the developments late in the month suggest potential paths toward compromise and stabilization.
Earnings Season Highlights: Looking in the Rear View Mirror
Despite heightened volatility and tariff-driven uncertainty, first-quarter earnings have offered a welcome dose of optimism, but understandably mostly a rear view look at the economy. As of last Friday, FactSet reported that 36% of S&P 500 companies had released results, with 73% surpassing earnings expectations. While this rate is slightly below the five-year average of 77%, the magnitude of the surprises has been encouraging: companies that exceeded expectations did so by an average of 10%, outpacing the five-year average of 8.8%.
Earnings growth—a key measure of corporate health—has also shown strength. According to FactSet, blended earnings, which combine actual results with estimates for companies yet to report, are tracking at 10.1% year-over-year growth. That’s a marked improvement from the 7.2% expected at the start of earnings season, suggesting results have been broadly stronger than anticipated.
Sector performance has varied widely. Based on FactSet’s numbers, Health Care leads the pack with impressive year-over-year earnings growth of 36.7%, followed by Communication Services at 23.3% and Information Technology at 15.1%. On the other end of the spectrum, Energy earnings are down 14.2% compared to a year ago, while Materials and Consumer Staples both show declines of 7.7%.
While earnings growth captures headlines, profitability is often the more telling metric when assessing the health of corporate America. If rising costs begin to erode margins—especially when companies can’t pass those costs along to consumers—it can lead to tighter budgets, layoffs, and potentially signal the early stages of a recession.
As of last Friday, FactSet reported that the blended net profit margin for the S&P 500 in Q1 stands at 12.4%, above both the year-ago level and the five-year average of 11.7%. At the sector level, six industries are showing year-over-year improvements in profitability, with Communication Services (15.6%) and Health Care (8.3%) leading the way. However, five sectors are reporting a year-over-year decrease in their net profit margins led by Real Estate (34.6% versus 36.2%) and Energy (8.0% versus 11.1%).
Reviewing Previous Company Highlights this Earnings Season:
- Technology: Alphabet posted strong growth, particularly in cloud services, confirming resilient business investment trends and showing that AI hasn’t cannibalized its ad revenue business. Tesla’s earnings were more mixed, but management emphasized progress on next-generation vehicles and energy projects, which supports longer-term growth. Taiwan Semiconductor Manufacturing, a huge supplier to Apple and Nvidia, reiterated its capital budget plan of $38-42 billion this year, guided revenues higher to $28.4-29.2 bln, with management stating it has yet to see any change in customer behavior, giving it confidence in its estimates for the year. Its tariffs could jump to 32% if the 90-day pause does not conclude with better negotiations. On the flip side, Amazon, Meta, Intel, IBM, Comcast, and Verizon had more concerning things to say about the current environment.
- Financials: Banks such as JPMorgan, Wells Fargo, and Discover Financial Services reported solid results. Higher interest rates continued to boost net interest income, although we are closely monitoring early signs of rising consumer credit delinquencies.
- Consumer and Industrials: Companies like Procter & Gamble, PepsiCo, and Honeywell showed strong earnings, but voiced concerns over tariffs. Procter & Gamble lowered its outlook for the year with many raw and packaging materials, as well as finished products, all sourced from China. Pepsi missed expectations last week and cut its fiscal year 2025 outlook with beverages experiencing a 3% drop in volume as soft consumer demand and value-conscious shopping behavior kicks in. Honeywell beat estimates and issued in-line guidance. Consumer product and leisure companies are reporting they are struggling with tariffs and weaker spending.
Economic Indicators: A Mixed, But Manageable Picture
April’s economic data announcements provided a few key insights:
- Inflation: Consumer prices rose 2.4% year-over-year, under expectations. Inflation remains a key focus for the Federal Reserve, and any future interest rate cuts are likely to be delayed given concerns over rising prices related to tariffs. The Federal Reserve will meet next week, but expectations are for no rate cuts at this time.
- Employment: The labor market remains strong, with unemployment at 4.2% and steady job creation. The average hourly earnings for all employees rose by 9 cents, or 0.3% to $36. We’ll get April’s numbers this Friday, but unemployment claims, a forward-looking read on jobs, have been holding steady in the low 200k range, far from recession levels previously seen.
- Consumer Behavior: Despite some dips in consumer sentiment surveys, retail sales increased solidly, suggesting household spending remains healthy or likely demand is being pulled forward ahead of expected price increases and shortages.
- Manufacturing and Housing: Manufacturing activity softened slightly, but housing markets stabilized thanks to a pause in mortgage rate increases.
What it means for you:
While economic growth is moderating, there are no immediate signs of recession. My strategy remains focused on navigating a slower, but steady, growth environment by emphasizing companies with quality balance sheets and innovative technology, with a watchful eye towards data that points to recession.
Will Tariffs Cause a Recession?
The Q1 earnings season numbers and economic indicators have been unhelpful at understanding the impact of tariffs as most of the changes related to China didn’t take place until this month and most reciprocal tariffs are on a 90-day pause. What companies are saying now is worrisome because of how many source their products from China. According to the Financial Times on April 25th, “tariffs were cited on more than 90% of earnings calls” and policy uncertainty is at the top of their concerns. In a CNBC article this Tuesday, it was reported that the Port of Los Angeles expects shipping volume to drop 35% next week compared to last year.
The drop in transported goods from China because of the tariffs has led Apollo Global Management to declare a recession by this summer. According to CNBC, Torsten Slok, Chief Economist there, said “the consequences will be empty shelves in US stores in a few weeks and Covid-like shortages for consumers and for firms using Chinese products as intermediate goods.” While many companies likely stocked ahead, the container volume drop that Los Angeles is expecting will have a direct impact until negotiations reduce tariffs. The Dow Jones Transportation Average is down 14.2% year-to-date as of Tuesday signaling a dismal outlook for moving goods at this time.
What Are the Positives of the Current Trade War?
There are two main positive catalysts that have not been accounted for: onshoring production and possible tax cuts. This Sunday, on TruthSocial.com, Trump stated, “When Tariffs cut in, many people’s Income Taxes will be substantially reduced, maybe even completely eliminated. Focus will be on people making less than $200,000 a year.”
The plan, according to Politico, is to have a tax bill by Memorial Day. One of the key hindrances has been the desire for a state and local tax deduction. It is expected that the bill will include “more than $100 billion for immigration enforcement, new defense spending and an array of energy provisions for oil and gas production,” according to Politico. The tax bill is likely to extend the Tax Cuts and Jobs Act which is set to sunset this year and also add new provisions. Based on the Senate’s version, that could mean $800 billion in additional cuts. The cost of which is expected to be around $4 trillion. Chair of the House Ways and Means Committee, Jason Smith, said the bill is days away from being delivered. I don’t think these fiscal tax cuts have been priced into the current market.
Secondly, onshoring is happening. Companies that have announced increased spending in the U.S. include Roche, Abott Labs, Toyota, Amgen, Hyundai Motor, Chobani, Taiwan Semi, Eli Lily, GE Aerospace, Nvidia, Johnson & Johnson, Honda Motors, and more. Apple is actively looking to source its phones from India and pledged $500 billion over the next four years to be invested in the U.S. There’s no question this kind of investment will create jobs and be a GDP multiplier in the quarters ahead when these investments take form.
The Strategic Outlook
Given these developments, here are a few key points guiding my portfolio decisions:
- Diversification First: I continue to diversify across sectors and regions to reduce exposure to any one risk, like trade friction, while consumer-related companies have been reduced.
- Quality Matters: In volatile environments, companies with strong fundamentals and steady cash flow tend to outperform.
- Innovation over Uncertainty: For investors looking for growth and who can stomach volatility, I’m focused on companies that are disrupting their industries with innovative technologies.
- Staying Nimble: I am monitoring economic and market shifts carefully and stand ready to adjust portfolio positioning as needed. Current cash levels in the portfolio are elevated and commodity exposure to precious metals remain elevated with investments in silver and a new gold miner this quarter.
- Opportunities Ahead: Market volatility often creates attractive entry points. We are identifying opportunities in areas such as dividend growth stocks, high-quality bonds, and sectors benefiting from long-term trends like infrastructure and an energy transition.
If you find my weekly updates, monthly big picture articles, and timely financial planning articles helpful, please feel free to share them to your friends and family by forwarding my articles or pointing them to email me to join my free subscription at ryan[dot]puplava[at]financialsense[dot]com or by following/subscribing on LinkedIn via this link:
Subscribe on LinkedIn https://www.linkedin.com/build-relation/newsletter-follow?entityUrn=7245...
Content is for informational purposes only and does not constitute financial, investment, legal, or other advice.
There are risks involved in investing, including the potential for loss of principal.
Forward-looking statements are based on assumptions that may not materialize and are subject to risks and uncertainties.
Any mention of specific securities or investment strategies is not an endorsement or recommendation.
Advisory services offered through Financial Sense® Advisors, Inc., a registered investment adviser. Securities offered through Financial Sense® Securities, Inc., Member FINRA/SIPC. DBA Financial Sense® Wealth Management. Investing involves risk, including the loss of principal. Past performance is not indicative of future results.
