4/4/25: US Tariffs Spark Trade Tensions and Market Volatility

Trade tensions were the main focus this week after President Donald Trump announced broad new tariffs on April 2. The plan includes a 10% tariff on all imports, with higher rates for key trading partners: 34% on goods from China, 24% for Japan, and 20% for the European Union. While the proposal is intended to support United States manufacturing, it raises concerns about inflation, supply chain disruptions, and retaliation. Indeed, on April 4, China quickly responded with a 34% tariff on all United States imports, export restrictions on rare earths, and sanctions on select U.S. firms. Other countries may follow, adding to global economic uncertainty and market volatility.

Stock markets declined this week in response to these developments. The Dow Jones Industrial Average fell 7.5%, the Standard and Poor’s 500 Index dropped 8.0%, and the Nasdaq Composite lost nearly 9.5%. April 3 marked one of the most volatile trading days in recent years. U.S. Treasury yields moved lower during the week as investors shifted toward safer assets. The 10-year yield fell from 4.25% to 4.01%, and the 2-year yield declined from 3.91% to 3.68%, supporting bond prices and contributing to positive returns for bondholders week over week. Commodity prices also weakened. West Texas Intermediate crude oil fell from $69.36 to $61.92 per barrel this week after OPEC Plus announced plans to increase output in May. Even gold declined slightly to $3,105.00 per ounce as some investors took profits after its recent rally.

Labor market data remained strong in March. The economy added 228,000 jobs, led by gains in health care, retail, social assistance, and transportation. Wages rose 0.3% for the month and 3.8% year over year. The unemployment rate ticked up slightly to 4.2%, driven by more people entering the labor force. Other economic indicators were mixed. The ISM Manufacturing PMI declined to 49.0, signaling contraction, while the MNI Chicago PMI came in at 47.6, with both remaining in contraction territory. Services, while still expanding, showed signs of softening as the ISM Services Index, which is more widely followed, came in at a disappointing 50.8. Overall, the data suggests the economy continues to grow modestly as it enters the second quarter, though the full impact of recent trade actions may not yet be visible.

The Treasury yield curve steepened this week, indicating the market expects lower short term interest rates; investors are now pricing in four federal funds rate cuts in 2025. Chandler expects rate reductions within the next six months, with the timing now possibly moving earlier. Having positioned portfolios to be long duration, our clients are benefiting from the decline in rates. The Chandler team will continue to monitor the markets and adjust portfolios as needed to further manage risk and support long term investment goals.