Apr 08, 2025 Market Commentary: Corrections, Capitulation, and a Case for Calm
The start of April brought a swift and sharp shock to global markets. A surprise round of aggressive tariffs announced by President Trump rattled investors and triggered a wave of selling across major asset classes. Within days, the S&P 500 dropped over 9%, and the Nasdaq-100 officially entered bear market territory. Volatility surged—measured by the VIX, it hit its highest point in five years—as investors feared a mix of slowing growth and rising inflation, sometimes called a “stagflationary” threat.
What changed so suddenly? On April 2, the administration rolled out sweeping tariffs—starting with a 10% blanket duty on most imports, and even steeper charges targeting specific regions: 34% on Chinese goods, 20% on the EU, and 46% on Vietnam. The retaliation was just as fast. China responded with its own 34% tariff on U.S. goods and targeted key American sectors like poultry and defense. This sudden escalation in trade tensions injected major uncertainty into markets already walking a tightrope between strong recent performance and underlying economic risks.
Policy Crossroads and a Shifting Backdrop
The Federal Reserve now finds itself in a tricky spot. Chair Jerome Powell noted that the tariff package was “significantly larger than expected,” and likely to affect growth, employment, and prices. But at the same time, inflation was already proving sticky even before the tariff news—so the Fed is cautious about rushing to cut interest rates. Markets, however, are pricing in multiple rate cuts by year-end. Investors currently expect the Fed funds rate to end 2025 around 3.5–3.75%.
Meanwhile, bond markets are signaling growing concern. The yield on the 10-year Treasury has dropped to about 4.0%, down from nearly 4.8% late last year, as investors move into safer assets. Interestingly, long-term yields haven’t fallen quite as dramatically, reflecting the Fed’s wait-and-see stance and continued inflation risks.
What’s Next for the Economy?
The big question is whether these tariff shocks will tip the U.S. economy into recession. So far, that’s not the base case for most economists. Growth forecasts for 2025 have been revised down, but the overall picture is still one of modest expansion. The job market remains strong, wages are growing faster than inflation, and services—less impacted by global trade—are holding up well.
That said, markets are feeling the strain. Stocks sold off across the board, wiping out trillions in market value in just a few sessions. Credit markets are showing early signs of stress too, though not at crisis levels—spreads have widened, but they’re still within a historically normal range.
Much of the equity sell-off looks like a valuation reset rather than a sign of something fundamentally broken. U.S. stock valuations had become quite stretched compared to the rest of the world—on average, about 60% higher based on price-to-earnings ratios—so this may simply be a return to more reasonable levels.
Sector Shifts and Flight to Quality
Not all parts of the market were hit equally. High-growth tech names, especially the big “Magnificent 7” stocks, took the brunt of the selling. Defensive sectors like consumer staples, health care, and utilities held up relatively well, and even finished in the green on some of the worst days. Early in the week, retail investors tried to “buy the dip,” putting nearly $5 billion to work, mostly in tech and S&P 500 ETFs. But by the end of the week, even they pulled back, contributing to the broader sell-off.
That kind of across-the-board panic often marks a turning point. When everyone throws in the towel, it can set the stage for a recovery—especially if the economy avoids a recession and policy uncertainty clears up.
What Should Investors Do Now?
1. Diversify Across Assets
Now more than ever, diversification matters. A well-balanced portfolio—mixing stocks, bonds, cash, and perhaps some alternatives—helps cushion the impact of sudden shocks. While equities dropped, assets like Treasuries and gold rose, helping limit the damage for diversified investors.
2. Focus on Quality
In times like these, quality counts. Companies with strong balance sheets, steady earnings, and healthy cash flows tend to hold up better. Many of these names—especially among blue-chip tech and financials—are now trading at much more attractive prices after the sell-off.
3. Stay Long-Term Oriented
Market volatility can be nerve-wracking, but it’s important to stay focused on your long-term goals. Periodic pullbacks are normal—and can even be healthy. If your financial situation allows, consider taking advantage of lower prices by gradually investing into weakness using a disciplined approach like dollar-cost averaging.
4. Manage Risk, Don’t Avoid It Entirely
This isn’t the time to make bold bets or try to outguess every headline. But it’s also not the time to go to cash and stay there indefinitely. History shows that markets recover—sometimes sooner than we expect. If you keep a steady hand, maintain balance, and stick with quality, your portfolio can ride out the storm and benefit when conditions eventually improve.
As always, if you have any questions, please don’t hesitate to reach out to your financial advisor.
-The Seventy2 Capital Team
Commentary and Research provided by:
Michael Levitsky, CFA®, CAIA® – Managing Director, Investment Strategy
The S&P Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market value-weighted index with each stock’s weight in the Index proportionate to its market value.
THE NASDAQ 100 Index is an unmanaged group of the 100 biggest companies listed on the NASDAQ Composite Index. The list is updated quarterly, and companies on this Index are typically representative of technology-related industries, such as computer hardware and software products, telecommunications, biotechnology, and retail/wholesale trade.
The CBOE Volatility Index® (VIX®) shows the market’s expectation of 30-day volatility. It is constructed using the implied volatilities of a wide range of S&P 500 index options. This volatility is meant to be forward-looking and is calculated from both calls and puts. The VIX is a widely used measure of market risk and is often referred to as the “investor fear gauge.”