Monthly Markets Memo - May 2025

April Tumult: Tariffs, Trade, and Treasuries

April saw the much-expected rollout of President Trump’s new tariffs on imported goods. Despite the high-level of anticipation, the scope, magnitude and stated goals of the new tariffs sent shockwaves through global markets. For nearly a week (4.5 trading days), the Administration held firm in its public statements that the goal of the tariffs was to re-architect the global trade system, driving manufacturing back to the US and balancing trade between the US and the rest of the world. In the two days equities sold off hard, and Treasuries rallied (yields dropped) but then yields started rising as the persistent message of re-engineering global trade really began to take hold and, it is posited, foreign investors began to trim their holdings of US long-term bonds in anticipation of having fewer US dollars to hedge. This led to the largest 5-day rise in the 10Y US Treasury yield since June of 2022 (peak inflation and FOMC pounding the table on rising rates). This fast and unexpected move in the 10Y further spooked markets and, ultimately, caused the administration to blink. On April 9th, President Trump posted on social media that he would be suspending the announced “reciprocal” tariffs for most countries (China was excluded, because it had retaliated with new tariffs of its own). Further, over the following days, the administrative face of the tariffs changed from the WH council of economic advisers and Commerce Sec. Lutnick to Treasury Sec. Bessent. Further, the newly communicated rationale for the tariffs and 90-day pause was to allow for time to negotiate bilateral agreements with countries in an effort to isolate/pressure China. These were viewed by investors as very market-friendly/responsive changes by the administration and by the end of the month, equities had erased most of their losses since “Liberation Day”. While the pause of the announced tariffs and the public pivot away from re-orienting the global trade system was certainly welcomed by markets, the cloud that continues to hang over markets and bears keeping in mind is the temporary nature of all trade policy under the administration. It’s unclear what the endgame is for the administration on trade: do they genuinely want to increase manufacturing in the US? Are they seeking to induce modest concessions from Allies and close trade partners? Or is the endgame to raise tax-revenue to allow for more flexibility in their proposed tax legislation? No one can say with any certainty what the goal is, and that is likely by design from the administration to try to maximize their negotiating leverage. With this lack of clarity around the endgame, and the trade policy via executive order nature of the agreements, a volatility premium will likely persist in markets and bears watching closely.

Chart of the Month: Soft Surveys, Hard (to Find) Data

So called “soft” data, where data providers survey consumers about their feelings on the economy or business executives on their current activities, prices paid, hiring, etc. as well as their outlooks for future activities, prices paid, hiring, etc. have essentially fallen off a cliff in response to the tariff announcements from the administration. The sharpness of decline in these data sets is similar to declines seen in previous recessionary environments. The so-called “hard” data, observable data out in the economy or actual “transactions” so to speak, such as the monthly Employment Report (Nonfarm Payrolls + Unemployment rate), Weekly Unemployment Insurance Claims, and CPI/PCE. The hard data has not yet “confirmed” the decline in the “soft” data. This gap can’t persist for too long, either the vibes will improve or we’ll begin to see cracks in the observable economic data (e.g. layoffs increasing, consumers spending less, etc.)

Equities