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Market Brief: May 2025

May 1, 2025

The Markets (as of market close April 30, 2025)

Wall Street in April generally ebbed and flowed in response to uncertainty over U.S. trade policy and the impact of tariffs. April got off to a very rocky start as the stock market endured its worst week since the COVID pandemic. Investors moved away from risk following the announcement of President Trump's sweeping tariffs, particularly those aimed at China, and that country's immediate retaliatory response, which raised fears of rising inflation and global economic recession. Wall Street rebounded the following week after President Trump announced a 90-day pause on many of his new tariffs. Investors were then hit with President Trump's threat to fire Federal Reserve Chair Jerome Powell, which resulted in another negative week for the markets. Toward the end of April, Wall Street settled into a wait-and-see mode, which resulted in moderate gains as investors remained alert to further developments. However, contraction of the U.S. economy for the first time in three years drove stocks mostly lower to close out the month. The market sectors ended April mixed, with consumer staples and information technology outperforming, while energy, financials, real estate, materials, and health care declined.
 
The latest inflation data was encouraging: however, it does not reflect the potential impact of global reciprocal tariffs. Both the personal consumption expenditures (PCE) price index and the Consumer Price Index declined over the 12 months ended in March. Energy prices were a large contributor to the decline in overall consumer prices.
 
Growth of the U.S. economy was muted in March. The gross domestic product (GDP) fell 0.3% in the first quarter following a 2.4% increase in the fourth quarter. Net exports cut into GDP as imports jumped nearly 40% primarily due to businesses and consumers stockpiling goods in advance of potential tariff-driven price increases. Consumer spending rose 1.8%, the weakest increase since mid-2023. For 2024, GDP rose 2.8%, 0.1 percentage point less than the 2023 rate.
Job growth exceeded expectations in March, although the unemployment rate ticked higher. Wages rose 3.8% over the past 12 months. The number of job openings fell by 288,000 in March to 7.2 million, which was the lowest total in six months and well below expectations. However, this data does not reflect the layoffs and cuts sanctioned by the Trump administration. The latest unemployment data showed total claims paid in mid-April increased by more than 100,000 from a year earlier.
 
According to FactSet, despite concerns in the market about tariffs and higher costs, the S&P 500 reported earnings growth of 12.4% thus far in the first quarter, which is lower than the prior quarter's net profit margin but above the net profit margin from a year ago and higher than the five-year average of 11.7%. While first-quarter reporting is not complete, if the current data remains consistent, this will mark the fourth straight quarter of net profit margins above 12%. Among the sectors, six reported a year-over-year increase in net profit margins in the first quarter, led by communication services and health care. Conversely, the energy sector has reported the largest year-over-year decline in earnings of all 11 sectors. A drop in oil prices has contributed to the decrease in earnings for this sector.
 
The real estate market had mixed results in March, with sales of existing homes falling, while new home sales rose. Mortgage rates decreased somewhat but remained elevated. According to Freddie Mac, the 30-year fixed-rate mortgage averaged 6.81% as of April 24. That's down from 6.83% one week before and down from 7.2% one year ago. Over the last few months, rates for 30-year fixed mortgages have remained stable and have fluctuated less than 20 basis points over that time.
Industrial production slowed in March but rose over the last 12 months. Manufacturing output, utilities, and mining each increased since March 2024. Purchasing managers reported manufacturing slowed in March, while services expanded.
 
Ten-year Treasury yields closed the month lower due to concerns that tariffs and government spending cuts may hurt the economy. The two-year note closed April at about 3.6%, down 28 basis points from a month earlier. The dollar index dipped lower from a month earlier, as it hovered around a three-year low of 98.3. Gold prices rose in April, marking its fourth straight monthly gain. Crude oil prices declined to their lowest levels since April 2021 as trade policy uncertainty weighed on demand. The retail price of regular gasoline was $3.133 per gallon on April 28, $0.029 below the price a month earlier and $0.520 lower than the price a year ago. 

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark the performance of specific investments.

Looking ahead

Despite the volatility in the stock market, data has shown the economy to be somewhat resilient so far this year. However, trade wars could impact the global economy, which could curtail economic growth moving forward. The Federal Open Market Committee meets during the first full week of May. Fed Chair Jerome Powell has indicated that the Federal Reserve will not make changes to interest rates unless it is in the best interests of the economy to do so, regardless of outside pressures.

Data sources: Economic: Based on data from U.S. Bureau of Labor Statistics (unemployment, inflation); U.S. Department of Commerce (GDP, corporate profits, retail sales, housing); S&P/Case-Shiller 20-City Composite Index (home prices); Institute for Supply Management (manufacturing/services). Performance: Based on data reported in WSJ Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI, Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). News items are based on reports from multiple commonly available international news sources (i.e., wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations. All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Forecasts are based on current conditions, subject to change, and may not come to pass. U.S. Treasury securities are guaranteed by the federal government as to the timely payment of principal and interest. The principal value of Treasury securities and other bonds fluctuates with market conditions. Bonds are subject to inflation, interest-rate, and credit risks. As interest rates rise, bond prices typically fall. A bond sold or redeemed prior to maturity may be subject to loss. Past performance is no guarantee of future results. All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful.

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