Amidst Uncertainty Market Rebound

Market has rebound amidst fiscal uncertainty

April was a wild month, to say the least!  The month opened with “Liberation Day,” the day President Trump announced brand new tariffs on countries across the globe.  Stocks markets shuddered, with the S&P 500 declining 12% over four trading sessions beginning on April 3.

By the end of April, most of the tariffs had been put on hold while negotiations take place, and we began to see a real divergence between qualitative vs. quantitative information that was being released.  What we’ve found is that despite the anxiety and negative sentiment over tariff policy, the hard data has held up quite well so far.  This is reflected in the stock markets’ recovery since April. 8.

The two biggest areas to watch closely continue to be inflation and economic growth.  Let’s start with inflation.  The talk of potential inflationary pressures from the new tariffs has put corporate leaders and consumers on edge.  In addition to nervous consumers, business leaders are uneasy.  They hate uncertainty and find it difficult to make plans when they don’t know what the rules are going to be. 

The high level of uncertainty and negative sentiment among business owners and consumers has stoked fears of stagflation.  Stagflation occurs when persistent high inflation combines with high unemployment and stagnant demand.  But does the data match the sentiment?

In March, the core inflation rate (CPI minus food and energy) rose +.1% for March and +2.8% for the trailing 12 months.  The Core PCE Index, which is the Federal Reserve’s preferred measure, also declined for the month.

These inflation readings were near four-year lows.  So far, the data does not point to stagflation.  

We must remember, however, that these reports were for the month of March… before the tariff turmoil in early April.  Any tariffs that have been, or may be put into effect may push inflation higher.  Just like the Fed, we will be watching each report in the future closely.  But these are the number we have, and, so far, inflation is well behaved. 

One other thing on inflation: 13 court cases are underway that could derail the Trump Administration’s tariff plan.  If tariffs were to be halted by the courts, a sense of relief would fall over the markets and we would expect a decent rally.  This process will take time, however, and it all may end up in the Supreme Court. 

The soft landing vs. hard landing fight continues.  Tariffs have added a formidable variable to make forecasting even harder.  Don’t expect a meaningful move higher for stocks over the next few months.  We are still dealing with a lot of uncertainty.