Gill Capital Partners April 2025 Market & Tariff Update #2
While we certainly don’t want to inundate your inbox, we do like to send out more frequent communications during times of increased economic news and market volatility. We recognize that volatility can be unsettling and stressful, and our goal is to provide you with pertinent information and perspective to help you navigate the ups and downs of this market. The past week has been a roller coaster ride for the markets. As eloquently articulated by Ron Burgundy in The Anchorman, “Well, that escalated quickly.”
Tariff/Macro Updates
Markets rallied dramatically on Wednesday following several extraordinarily volatile days during which we saw U.S. equity markets briefly touch bear market territory. At certain points, the S&P 500 was down a little over 20% from the February highs, which officially signals a bear market. The volatility has been driven by a near-constant flow of unnerving and, at times, confusing headlines and information, all of which was kicked off by a press conference held by President Trump outlining tariffs that were far more aggressive than the market was anticipating. Conditions were aggravated over the past week by escalating retaliatory tariffs, largely between China and the U.S., along with oftentimes contradictory information that overwhelmed markets with uncertainty and fear of rising prices. So, where are we right now?
President Trump announced a 90-day suspension of recently implemented tariffs for over 75 countries that have engaged in trade negotiations with the U.S. During this period, a universal tariff rate of 10% will apply to imports from these nations.
In contrast, tariffs on Chinese imports have been significantly increased to 145%, effective immediately. This decision was attributed to China's perceived "lack of respect" in trade relations.
Before the U.S. announcement, China imposed an 84% tariff on U.S. goods in response to earlier U.S. tariff hikes, escalating the trade conflict between the two nations.
The 90-day pause aims to provide a window for the U.S. to negotiate individualized trade agreements with various countries, leveraging the willingness of over 75 nations to engage in discussions without resorting to retaliatory measures.
Following the announcement on Wednesday, U.S. stock markets experienced a substantial surge. The S&P 500 closed up nearly 10% on the day, and the NASDAQ rose over 12%, with the Dow Jones Industrial Average up nearly 3,000 points. This one-day gain in the S&P 500 was the third largest single-day move in the index since the great depression, with only single days in October of 2008 posting larger gains. While still down for the year, this rally has nearly returned equity markets back to where they were before the tariff announcement on April 2nd.
Our view – The quick pivot by the Trump administration, which sent stocks soaring on Wednesday, appears to have been driven by escalating fears of material issues beginning to form in the bond market. Trump’s abrupt pivot took the worst case off the table for now. The market selloff, which began earlier this year and accelerated significantly following the tariff announcement on April 2nd, reached extreme oversold conditions over the past few days, with markets falling around 15% in less than a week before rebounding.
We look at various technical indicators that provide insights in times of heightened volatility, such as the “VIX” (Volatility Index), market volume, and the Relative Strength Index (RSI). All of our indicators were showing readings that were consistent with extreme levels of fear and panic, which have coincided with previous market bottoms. As an example, the VIX index reached a level of 60 this week, which is the third-highest reading we have seen in the past 25 years, having been higher only during COVID and the great financial crisis. Historically, readings like we saw this week have all preceded significant short-term market rallies. The extreme fear readings witnessed Monday through Wednesday coincided with a significant and rapid deleveraging that appears to have reached a crescendo, leading to a market that was deeply oversold and ripe for a significant bounce, which is exactly what happened.
While markets are relieved that the “worst case” scenario of permanent tariffs and endlessly escalating trade wars appears to be off the table for now, this is not over. We are still in an escalating trade war with China, and while all other tariffs aside from the baseline 10% are paused for negotiations, any potential resolution remains unclear. The lack of clarity and the constantly shifting landscape are taking their toll on consumers and businesses, and despite the bullish news of a temporary pause, the fundamental picture is certainly deteriorating in the near term. We are hopeful that policy attention will soon shift to tax and regulatory reform, which should prove to be tail winds for markets later in the year.
Update on Interest Rates
Over the past few days, we have seen interest rates on U.S. Treasuries move materially higher at a time when the odds of rate cuts by the Federal Reserve have been increasing dramatically. Particularly acute has been the move higher in longer-dated maturities. In fact, over the past few days, the yield on the U.S. 10-year Treasury moved from the recent low of 3.85% on Monday to 4.5% yesterday morning. This is a massive move in yields in a very short time; in fact, this spike was the steepest since 2008. This was influenced by a massive deleveraging event that happened extremely quickly over the past few days.
Our view – The extreme move in yields over the past few days is significant and likely caught the attention of the administration. This move was, at least in part, responsible for the temporary pause in the new tariffs that was announced yesterday afternoon. So, what drove this move, and what can investors expect going forward from interest rates? Historically speaking, in times of stress, investors rush into safe assets such as U.S. Treasuries, driving rates down. However, in times of extreme deleveraging like we just witnessed, and as occurred in 2008 and during Covid, institutional investors and hedge funds are forced to deleverage. When this happens, higher quality assets are sold first, and this is what happened this past week. This counterintuitive move is likely temporary, and we anticipate yields to normalize over the coming weeks and months as volatility decreases from extreme levels.
What Should Investors Be Doing Now?
The moves we have seen in markets over the past week have been extreme, and we understand how disconcerting it can be when reading the headlines. Markets will calm down, and eventually, they will move higher again. We showed you this chart last week, but we believe it deserves repeating, particularly after the past week. The best and worst days tend to cluster closely together, usually within days of each other.
Below are a few closing thoughts that we wanted to leave you with to hopefully provide perspective in times like this.
1. Volatility is the Toll We Pay for Long-Term Growth
Market swings like we’ve seen in the past few days, while disconcerting, are a natural part of the investing journey. If you want the upside of long-term wealth creation, you have to stay seated during the turbulence.
2. History Rewards Patience, Not Panic
Every correction or crisis feels unique in the moment, but over time, markets have always recovered and moved higher. The investors who stay disciplined come out stronger. The ones who sell often miss the recovery.
3. Emotions Are the Enemy of Wealth
This is the moment where your behavior matters more than market headlines. Fear is normal, but acting on it is often what derails long-term plans. Let’s stick to your strategy, not your stress.
4. Your Plan Was Built for This
We didn't design your portfolio based on everything going perfectly—we designed it to endure market storms like this. Your asset mix, the quality of the investments, your time horizon—they all still work.
5. If Anything, This Is Where Opportunity Begins
Times of fear create value. This is when great investments go on sale and when long-term investors are quietly building wealth while others are stepping away.
As always, please let us know if you have any questions or concerns, or if we can provide assistance with any other financial planning matters including education, taxes, insurance, or estate needs.